Knight Frank has lowered its forecast for UK house price growth in 2025 to 1%, down from its prediction of three.5% in May.
The property company has additionally downgraded its forecast for 2026 growth from 4% to three%.
But its analysts count on rents to extend by marginally greater than beforehand thought on account of the “unintended penalties” of presidency reforms.
In right now’s replace, head of UK residential analysis Tom Bill says: “A mixture of excessive provide and faltering confidence means we now count on slower UK house price growth this yr and in 2026.”
Over-supply of listings retains costs in test
Bill factors to elements reminiscent of April’s stamp responsibility adjustments and US president Trump’s tariff wars as having distorted the mainstream market earlier this yr.
He says: “The market spent the following few months getting again on its toes, helped by a steady price setting and the presence of sub-4% mortgages.
“Mortgage charges have moved little in both path since January regardless of three Bank of England cuts, largely as a result of the reductions had been priced in.
“However, costs have come beneath strain as a result of demand hasn’t stored tempo with provide, which has remained excessive because of a hangover of inventory from the April stamp responsibility cliff edge, the looks of listings delayed from 2024 as a result of basic election and a rising variety of landlords who’re promoting as a result of more durable regulatory setting.”
The variety of new potential consumers within the UK was 8% decrease within the yr to August in comparison with the earlier 12 months, whereas new gross sales listings elevated by 6% over the identical interval.
Bill says: “That imbalance, mixed with a basic sense of hesitation as November’s Budget approaches, has pushed our modest short-term downgrades for UK and Greater London house costs.”
Prime forecasts impacted by tax hypothesis
Knight Frank is now predicting a 4% drop in prime central London costs this yr, down from 0% in May, adopted by a flat market in 2026.
It expects prime nation costs to fall by 5% in 2025, after beforehand forecasting 2.5% growth in its May outlook.
However, it believes that prime nation house costs will return to growth subsequent yr, rising by 2% in 2026.
Knight Frank’s downgrades to prime London and nation forecasts have been pushed primarily by hypothesis over property and wealth taxes.
Reforms to drive rents greater
Knight Frank has elevated its forecast for lease rises subsequent yr from 3.5% to 4% in prime central and outer London.
Bill says: “The upwards strain on rents is partly the results of landlords promoting forward of the Renters Rights Bill, which might make regaining possession of a property extra onerous and raises the chance of void intervals.
“The prospect of stricter inexperienced rules have additionally made landlords take into account their choices.
“And that was earlier than the latest hypothesis round plans to cost nationwide insurance coverage on rental revenue.”
