The UK housing market is expected to see slower price growth this year and next as high supply and cautious buyer sentiment weigh on sales, according to Knight Frank’s latest forecast.

Average mainstream UK house prices are now projected to rise by just 1% in 2025, down from 3.5% in May, with Nationwide and Halifax indices hovering around 2%. Growth is expected to recover slightly to 3% in 2026, also below previous forecasts of 4%.

Tom Bill, head of UK residential research at Knight Frank, said the market’s low point came in April, after adjustments to stamp duty nil-rate bands and US trade tariffs triggered short-term instability.

Since then, he said, the presence of sub-4% mortgages has supported demand, but new listings continue to outpace prospective buyers.

Knight Frank reports that the number of new buyers fell 8% in the year to August, while sales listings rose 6%, leaving prices under pressure.

NON-DOM CHANGES

The story is more pronounced in prime markets. Prime central London (PCL) has been affected by speculation over taxes and wealth measures, including the scrapping of non-dom rules and an increase in additional stamp duty from 3% to 5%.

Average PCL prices, which had stabilised after a decade-long decline, are now forecast to fall 4% in 2025, down from a flat expectation in May, with 2026 projected to remain flat.

Prime outer London is expected to see no growth this year, down from a previously forecast 3%. Prime country markets are also under pressure, with prices expected to fall 5% in 2025.

REGULATORY UNCERTAINTY

While sales forecasts have been downgraded, Knight Frank expects modest upwards pressure on rents, driven by landlords selling ahead of the Renters’ Rights Bill and the potential introduction of national insurance on rental income.

Rental values in prime central and outer London are forecast to rise 4% in 2026, up from an earlier estimate of 3.5%.

High supply, regulatory uncertainty, and looming fiscal changes are combining to slow price growth, particularly in prime London and southern markets, although long-term prospects remain more positive for investors betting on mid- to long-term recovery.

Knight Frank said that post-Budget developments could further influence market dynamics, with tax uncertainty likely to continue shaping buyer and landlord decisions into 2026.

REVISED FORECAST

Bill said: “We have therefore revised our 2025 forecast for prime central London to -4% from 0% in May. Our PCL price index stood at -3.2% in August. We have also downgraded our 2026 forecast to 0% from 2.5%.

 “We have also revised down our numbers for prime outer London, where demand is more needs-driven and less susceptible to policy changes like non dom tax reform. We expect prices to be flat in 2025, down from +3% in May.”