UK real estate: Outlook positive for 2025 despite interest rate challenges

Stacy Eden, national head of real estate and partner at RSM UK, comments: “The outlook for the UK’s real estate sector next year is positive, with government spending set to accelerate economic growth to almost 2% in 2025, as outlined in our latest Quarterly Economic Outlook. As such, economic recovery will also support recovery in the housing market, with house prices expected to grow by about 4% next year. This follows a 1.2% increase in house prices in November, taking annual growth to 3.7% – the fastest rate in two years. Mortgage approvals also increased by 3.3% in November, a sign of robust demand for housing as we move into Q1 2025.  

“However, following the Autumn Budget, the risk of slower interest rate cuts and income growth may stall market activity, which alongside an uptick in mortgage rates, has dampened business confidence. The increase to property taxes in April 2025 may also cause some volatility in the first half of the year. But, borrowing costs will gradually come down, with an anticipated 25bps rate cut per quarter throughout the year, which will support house prices as mortgage rates follow suit. Lower borrowing costs will enable first time buyers to get on the ladder, despite house prices being held up by supply challenges in the residential market.” 

He added: “The chronic lack of housing in the UK has been a significant issue for many years, with affordability, rising rents (although slowing), social housing shortages and regional disparities adding to the complexity. Government is clearly focusing on accelerated housebuilding and planning reform, by loosening planning regulation on green belt and grey belt land. These steps may go some way to address the shortage, resolve the supply and demand equation over time and bring liquidity to the market, supporting house price growth and transactions in 2025 and beyond.”