New Knight Frank forecasts for house prices and rents
Making sense of the latest trends in property and economics from around the globe
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Knight Frank published revised house price forecasts this morning to account for the new outlook for mortgage rates.
We now expect average UK house price growth of 2.5% in 2025, 3% in 2026, and 3.5% in 2027 down from our August forecast of 3%, 4% and 5%. Over the five-year period, we expect cumulative growth of 19.3%, which compares to an equivalent figure of 20.5% three months ago. That makes us a touch more bearish than peers, at least through to the end of 2026, according to a Reuters tally of 21 housing analysts.
Similarly, our forecast for the Greater London mainstream market has come down slightly, with cumulative growth of 15.3% expected between 2025 and 2029. We think affordability pressures will continue to be felt more acutely in the capital than other regions of the country.
“We have seen a jump in borrowing costs since the chancellor set out her economic plans and expect more downwards pressure on prices and transaction volumes in the short term,” Knight Frank's Tom Bill tells the Times.
Rental forecasts
While we have revised down our sales forecasts slightly in the near-term, we have edged up our rental numbers to reflect the uncertainty surrounding the Renters Rights Bill.
Again, the change is small but reflects the risk that supply may become more constrained due to legislation that tips the balance of power in favour of tenants. Plans include the scrapping of no-fault evictions and tighter rules around rent increases.
A number of landlords have already sold due to a succession of tax and legislative changes in recent years, so we are not expecting a further material drop in supply. Nevertheless, we have revised up our forecasts for prime central and outer London - both prime central London and prime outer London, we expect growth of 3.5% in 2025 rising to 4% in 2027 (up from figures of 3% and 3.5% in August). Our mainstream rental forecasts are largely unchanged.
A sense of gloom
The Budget delivered a broad-based hammer blow to business sentiment. The real impacts have so far been limited, though clear to see - UK private sector firms reported a decline in business activity in November, ending a twelve month period of sustained expansion, according to the latest PMIs.
Survey respondents typically noted subdued customer demand. Some firms noted delayed investment decisions, as well as cutbacks to new projects in response to worsening domestic business conditions and geopolitical uncertainty. Selling prices are rising at the slowest rate since the pandemic, though the service sector reported the steepest rise in input prices since July.'
Sentiment regarding business activity expectations for the year ahead was the least upbeat since December 2022. Separate figures showed retail sales fell much more than expected in November - you can find Stephen Springham's take on those here. Sterling fell to a six month low following the release of the data.
In other news...
How might the UK's largest cities stem graduate 'brain drain'? Real estate is part of the solution.
Elsewhere - British Land cashes in on retail parks (Times), and finally, Brookfield commits £900mn to backstop Canary Wharf refinancing (FT).