While the estate agency’s 2025 house price growth and transaction forecasts remain unchanged, they have downgraded longer-term growth due to high interest rates and taxes bearing down on the market.
The company projects that 2025 will mark the beginning of a new property market cycle, with London seat to start outperforming other regions for the first time since 2015 with 4% annual price growth in 2025.
Hamptons also projects just under 1.1 million transactions across Great Britain in 2024, rising to 1.2 million in 2025 and 2026. Higher neutral interest rates and transaction costs than we’ve seen in previous cycles will weigh on long-term numbers, resulting in a new norm of 1.3 million moves in 2027.
Rental growth is also expected to moderate but remain above inflation, with increases of 4.5% forecast in 2025 and 4% in both 2026 and 2027.
Meanwhile, between now and the end of 2027, Hamptons expect rents to rise by 17% across Great Britain, outpacing house price growth of 12.5%.
Annual house price growth forecast
| Q4 2023 | Q4 2024(f) | Q4 2025(f) | Q4 2026(f) | Q4 2027(f) | 2024-2027 Total | |
| London | -4.8% | 2.5% | 4.0% | 4.5% | 3.5% | 14.5% |
| East of England | -4.1% | 2.5% | 3.5% | 4.0% | 4.0% | 14.0% |
| South East | -4.0% | 3.0% | 3.5% | 4.0% | 4.0% | 14.5% |
| South West | -3.6% | 3.0% | 3.0% | 4.0% | 3.0% | 13.0% |
| East Midlands | -2.4% | 3.0% | 3.0% | 3.5% | 2.0% | 11.5% |
| West Midlands | -1.8% | 3.0% | 3.0% | 3.5% | 2.5% | 12.0% |
| North East | -1.4% | 3.5% | 3.0% | 3.0% | 2.5% | 12.0% |
| North West | -1.0% | 4.0% | 2.0% | 2.5% | 2.0% | 10.5% |
| Yorkshire & The Humber | -1.8% | 4.5% | 2.0% | 3.0% | 1.5% | 11.0% |
| Wales | -2.2% | 2.5% | 2.0% | 2.5% | 2.0% | 9.0% |
| Scotland | -0.5% | 6.0% | 2.0% | 3.0% | 1.5% | 12.5% |
| Great Britain | -2.6% | 3.5% | 3.0% | 3.5% | 2.5% | 12.5% |
Source: ONS & Hamptons
Aneisha Beveridge, head of research at Hamptons, said: “As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism. Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected.
“Even though an improving affordability picture, driven by lower mortgage rates and robust pay rises, looks likely to fuel price increases and transactions in 2025, higher rates for longer will weigh on long-term growth. The combined effect of persistently higher interest rates and sluggish economic growth is likely to dampen long-term house price performance compared to previous cycles. It will also remain a barrier to homeownership for many would-be first-time buyers, limiting longer-term transaction numbers.
“While the future direction of interest rates seems to have been mapped out, the pace of this journey and its ultimate destination remains uncertain. Changes to rate expectations remain the key risk to the housing market. But what seems more certain is that the London market is set to outperform the other regions next year as a new cycle begins.”
House price growth
2024
Hamptons says housing market turned a corner in 2024, with house price growth reversing the declines of 2023. This rebound was primarily driven by lower mortgage rates, which have fallen faster than expected.
By August 2024, the Office for National Statistics index, from which we forecast, showed a year-on-year rise of 2.3% across Great Britain, with the average price hitting a new high. The South continues to lag behind the North of England in this recovery.
Improved affordability due to falling mortgage rates has been the key factor. The average rate on a five-year fixed rate deal at 75% loan-to-value dropped from 5.2% in September 2023 to 4.1% in September 2024. Strong income growth has also helped lessen some of the pressures brought about by the cost of living crisis.
Despite this positive trend, the recovery is not uniform across all sectors. The prime markets have been more cautious due to speculation about Budget changes to capital gains, inheritance tax, stamp duty and non-dom status.
By the end of 2024, the average value of a home in Great Britain is forecast to be 3.5% higher than in the final quarter of 2023, outperforming our prediction last year of no change. This overperformance is attributed to a faster-than-anticipated decrease in mortgage costs as inflation fell more quickly than expected.
2025
The agency’s forecast for 2025 remains unchanged with 3.0% price growth across Great Britain, supported by the continuing downward trend in interest rates. This is expected to boost both prices and sales, with the average house price in Great Britain reaching £300,000 by the end of 2025, about £10,000 above its current level. By the end of next year, prices in every region should have recovered to their 2022 pre-mini Budget peaks.
The base rate is likely to reach around 3.75% by the end of next year. While these cuts have already been priced into mortgages, fierce competition among lenders should reduce borrowing costs for households seeking higher loan-to-value borrowing and niche lending. This should particularly help first-time buyers and upsizing households who typically require larger loans. However, mortgage rates for those with more equity are unlikely to fall much more. Furthermore, a stamp duty rise from April 2025 and a weak economic backdrop will temper price growth.
Next year is anticipated to mark the beginning of a new housing cycle when London starts to outperform the rest of the country. We forecast 4.0% price growth in London in Q4 2025, outpacing the other regions for the first time since 2015. However, unlike the beginning of previous cycles such as in 2008 and 1994, areas outside Prime Central London (PCL) are expected to be the strongest performers. PCL’s recovery is likely to be delayed as buyers and sellers adjust to revised tax rules.
Overall, affordability is expected to remain the key determinant of the market’s direction, with incomes set to outpace inflation for the second year running, encouraging those who had been deferring relocation to consider moving.
2026
The base rate is expected to settle at around 3.5% in 2026, with typical mortgage rates following suit and falling to an average of about 4.0%, down from 4.6% today. However, towards the end of the year, mortgage rates may start to edge upwards as financial markets anticipate the next interest rate cycle.
As a result, Hamptons’ house price growth forecast for 2026 has been downgraded from 5.0% to 3.5%. This adjustment reflects the dampening effect of higher interest rates alongside a fairly lacklustre and higher tax economy, which, whilst set to improve, remains weak on a historical basis.
Price growth is expected to be driven by the South of England, with house prices reaching new peaks in many locations in these regions. This could enable households whose house prices had previously taken a hit to contemplate moving. A small revival in PCL is also anticipated, as buyers begin to adapt to the tax increases introduced in the 2024 Budget.
The lack of new home construction due to planning and market restrictions is expected to support prices, to a degree, by limiting supply. However, there may be an increase in flats for sale as a result of leaseholder reforms and the remediation of blocks with dangerous cladding.
2027
Longer-term house price growth across Great Britain is expected to average about 2.5% annually. This compares to the 2015-2019 period when annual house price growth averaged 3.9% with base rates below 1%. The new era of interest rates, likely to remain above 3%, is expected to temper house price growth.
Despite the strengthening economy, homeownership will remain challenging for low-income households due to more stringent stress-testing checks and higher deposit requirements compared to previous cycles.
Hamptons adds that London prices are forecast to outpace other regions, but not to the degree seen earlier this century. Between the end of the global financial crisis of 2008 and 2012, prices grew by 20% in the capital. Between the end of 2024 and 2027, we are forecasting a 14.5% increase, following just 11% growth between 2016 and 2023. Affordability constraints combined with higher taxation mean the company has downgraded its London forecast by at least 1% each year from here on in.
Price appreciation in London is expected to ripple out to other regions more rapidly than in the past, particularly benefiting other markets in the South of the country. This is partly due to the impact of flexible working, which has more closely tied the fortunes of these areas to London.
However, the cyclical nature of the housing market means that we forecast that the North West, Yorkshire & The Humber and Wales will have seen prices rise more in 2022 alone than they will over the next four years.
Transactions
Transaction volumes have shown signs of recovery in 2024, with sales across Great Britain likely to total just under 1.1 million, in line with our previous forecast and up from 996,000 in 2023, which was the lowest in a decade.
This rebound has been fuelled by first-time buyers, who accounted for a record 31% of all sales. However, transaction numbers remain below the pre-pandemic 2015-19 annual average of 1.2 million, as the higher interest rate environment, broader uncertainty and rising house prices continue to pose barriers for potential buyers.
Looking ahead to 2025 and 2026, transactions are forecast to bounce back to 1.2 million, a 9% increase over 2024. This growth is expected to be driven by lower borrowing costs and improved affordability. Furthermore, a recovery in house prices should unlock more moves from those who have stayed put in recent years.
However, the market may be distorted by changes in stamp duty rates scheduled for April 2025. While there might be a slight uptick in transactions just before these changes take effect, the overall impact is not expected to cause a significant rush as the potential savings for most movers will be relatively small. There may, however, be more of a fillip from first-time buyers in the South of England.
Longer-term, it is likely that the base rate will bottom out just above the 3% mark. Based on this, Hamptons think annual sales volumes will settle closer to 1.3 million in 2027, lower than the 1.4 million we initially expected a few years ago. While rising household numbers over the past decade will increase demand, higher transaction costs and interest rates than we saw in the last cycle will weigh on the number of moves.
Rental growth
The rental market has experienced cooling growth rates following record peaks in 2023. Despite this slowdown, rental growth is still outpacing inflation, with both the costs of new contracts and renewals rising.
The average rent on a newly let property is projected to increase by 4.5% across Great Britain in the final quarter of 2024, a significant drop from the 10.2% growth seen in 2023. This slowdown in the rate of rental growth is partly due to lower mortgage rates and inflation, which have reduced the need for landlords to increase rent as much as last year, as well as squeezed tenant affordability.
Looking ahead to 2025 and beyond, Hamptons says rental growth is expected to continue softening, but remain above both house price growth and inflation in the long term. The company is predicting rents to rise 4.5% in 2025, followed by 4% in both 2026 and 2027.
This trajectory is driven by the continued squeeze on landlords’ profits due to higher mortgage and servicing costs, alongside higher barriers to entry given the rising stamp duty surcharge on second home purchases. However, the pace of increases will be increasingly constrained by affordability pressures on tenants resulting from past steep rises and broader cost of living challenges.
While economic drivers will have the most significant impact on house prices, political risks, such as implementing the Renters’ Rights Bill, are expected to shape rental growth.
This legislation, along with other regulatory changes like EPC requirements, may lead to a further reduction in rental property supply as some landlords, particularly older investors, choose to exit the market.
Consequently, rental growth is predicted to remain above its long-term historical average of 1.8% annually and stay ahead of inflation. Overall, we expect rents to rise by 17% between 2024 and 2027, outpacing house price growth of 12.5%.
