By Jonathan Cable and Shaloo Shrivastava
LONDON/BENGALURU (Reuters) – British home prices will rise faster than previously expected this year, but the increase will be outpaced by surging rental costs as demand outstrips supply, a Reuters poll found.
The market may receive a helping hand from the Bank of England, which is predicted to cut Bank Rate by another 75 basis points to 3.75% by year-end, according to another Reuters poll of 66 economists.
Support from lower borrowing costs means the average price of a British home will increase 3.5% this year and 4.0% next, according to a February 14-25 Reuters poll of 20 housing market experts. A poll last quarter predicted a more modest 3.1% rise in 2025.
In London home prices are expected to rise 3.0% in 2025 and 4.0% in 2026.
“The slow downward drift in mortgage rates this year should boost prices and sales volumes,” said Aneisha Beveridge at estate agency Hamptons.
“But by historic standards, property values will remain tightly constrained by higher taxation and the weak economic backdrop.”
Those price forecasts are higher than what economists say inflation will be this year and next – 2.8% and 2.3%. But the cost of renting will accelerate even quicker, rising 4.0% nationally this year and in 2026.
Rents in London were expected to rise at the same rate.
“Supply/demand imbalance remains in the rental market while the sales market has much greater supply and mortgage rates averaging 4-5% keeping a limit on price inflation,” said Richard Donnell at property website Zoopla.
The Labour government has pledged to build 1.5 million homes over the next five years. It also plans to introduce a Renters’ Rights Bill this year, which alongside changes to tax rules could push landlords to sell up and further limit supply for tenants, analysts say.
Asked how purchasing affordability for first time buyers would change over the coming year, an overwhelming 12 of 15 respondents said it would improve.
“An improvement in purchasing affordability will result from a fall in both actual mortgage rates and stress rates, plus the typical (first time buyer) salary increasing at least in line with the increase in the property prices,” said Scott Cabot at real estate services firm CBRE.
LITTLE CHANGE IN RATE VIEW
Economists mostly kept their interest rate forecasts unchanged from a poll taken in January despite raising their inflation predictions for this year and next.
Accelerating wage growth and rising inflation have prompted the BoE to maintain a cautious approach towards easing monetary policy. The BoE cut Bank Rate in February by 25 basis points to 4.50%.
The central bank raised its inflation forecast this month and more than 65% of contributors who participated in both the February and January polls raised theirs too. Median forecasts showed inflation averaging 2.8% this year compared to 2.5% predicted previously.
“While we expect further progress in services disinflation, the higher-than-expected January print and the upcoming hike in gas and electricity bills in April have led to an upward revision in our 2025 inflation forecast,” noted economists at UBS.
Inflation rose to a 10-month high of 3.0% last month.
More than 90% of economists polled, 23 of 25, said the risk to their inflation outlook for end-2025 was that it comes in higher than they expect rather than lower.
Yet the majority made no changes to their rate forecasts and expected the BoE to cut Bank Rate to 3.75% by year-end, lowering rates at a steady 25 bps per quarter.
Poll medians showed economists downgraded their growth forecasts for the UK economy. It was predicted to expand 1.1% this year and 1.4% in 2026, slower than 1.3% and 1.5% predicted last month.
(Other stories from Reuters global economic poll)
(Other stories from the Q1 global Reuters housing poll)
(Reporting by Jonathan Cable in London and Shaloo Shrivastava in Bengaluru, polling by Mumal Rathore, Jaiganesh Mahesh and Debrah Gomes; Editing by Ross Finley and Christina Fincher)
