Sales Market
Over the last 18 months, housing market activity has slowed as high interest rates, sticky inflation, and a weaker economy have impacted buyers’ affordability and confidence. At the end of 2023, transactions were down 22% on the pre-pandemic average (November 2017, 2018, 2019, HMRC) and house prices had fallen 2% year-on-year.Despite some early signs of optimism as we enter 2024, Cushman & Wakefield is forecasting further falls in house prices this year. House prices are forecast to fall 1.5% in the UK in 2024 and 1.0% in London in 2024. Most of the decline in house prices will happen in the first half of the year, as buyers hold out for further declines in mortgage rates. Demand and pricing are expected to pick up in the second half of the year, in line with base rates being cut, further reducing mortgage rates, and election uncertainty subsides (with the election outcome most likely in autumn 2024). London will perform more positively than the UK as a whole, with slower historic growth making London look more “affordable”, stronger household disposable income forecasts, more cash buyers, and a continued recovery in international buyers following the pandemic.
Pent-up housing market demand from a slower market in 2023 and 2024 will lead to a surge in demand, translating into strong house price growth in 2025. Cushman & Wakefield forecasts house prices to increase 5.5% in the UK and 6.6% in London in 2025.
House price growth will continue into 2026 and 2027, but growth will ease. The housing market will remain unaffordable to many households, and the impact of longer mortgage terms (less capital built up) will reduce buyer demand. Unaffordability in the sales market will continue to support growth in the private rented sector.
Rental Market
Since summer 2020, we have seen rents rocket, fuelled by an imbalance between supply and demand, worsened by the pandemic. We estimate that rents have grown 9.7% in the UK and 10.3% in London in 2023.
Going forward, Cushman & Wakefield expects rental growth to remain strong, although below the record levels seen in the last few years as inflation heads back to the 2% target and earnings growth slows. In 2024, Cushman & Wakefield forecasts rents to increase by 5.5% in both London and the UK. The main reason the forecasts show an easing in rental growth is due to a cooling in wage growth. Wage growth is forecast to increase by 6.4% in the UK in 2024, down from 7.9% in 2023, therefore placing downward pressure on rental growth.
Cushman & Wakefield forecast rental growth to slow to a more sustainable level from 2025 onwards. Largely down to inflation remaining at target of 2%, a slowdown in wage growth, and the supply-demand imbalance improving due to continued growth of the build to rent sector. An average of 3.5% annual rental growth in the UK from 2025 sits somewhat in line with the long-term historical rental market performance.
Rental growth in London is forecast to be higher than the rest of the UK, given the greater extent of the supply-demand imbalance and stronger wage growth forecasts.
