UK Property Market: Where do we stand at mid-year?

Back in January, I shared a cautiously optimistic outlook on the UK property market. As we enter the second half of the year, that view continues to hold true.

If you’re considering your next move, whether that’s expanding your portfolio, purchasing a second home, or simply keeping an eye on the market, now is a good time to take stock.

Interest rates

Between January and May, the Bank of England reduced interest rates by 0.5%. And with four Monetary Policy Committee meetings remaining in 2025, many investors anticipated further cuts in August and November, potentially bringing the base rate down to 3.75% by year-end.

But at its June meeting, the Bank held the rate steady at 4.25% – a decision that was largely expected given ongoing global uncertainty. However, this pause highlights how quickly the narrative can shift. What began as a confident path toward lower rates has become a more measured and cautious discussion.

I still believe we’ll see further movement, but as always, much depends on how the broader economic picture unfolds.

Market overview

The UK residential property market is sitting in broadly neutral territory, with current buyer demand and sales activity relatively flat. However, the continued expectation of lower interest rates could help encourage more buyers to enter the market in the coming months.

Below are some key takeaways from the past few months:

• Property transactions increased by a quarter in May to 81,470, 25% higher than April, but still 12% lower than a year ago.
• In May, Knight Frank increased their growth forecasts for UK house prices to 3.5% from 2.5%, as a result of the falling interest rates, highlighting their optimism for the market for the remainder of the year.
• Data from Savills highlights that London’s prime central districts are the most price sensitive, with price growth in prime central London hovering at -0.7% at the end of the first quarter of 2025.
• LonRes reported in May that transactions on properties valued over £5million in prime London were 14.7% lower than the same month last year, but that new instructions in the market increased by 2.8% over the same period. They also reported that the number of £5million+ homes available for sale across prime London has grown by 22.4% over the 12 months to the end of May.
• Zoopla continues to report that northern England is leading in sales growth and annual house price increases, currently at 3%.

Although there are still some ups and downs, overall, the market is holding up well.

Rental market

The rental market is also performing strongly but still shows signs of rental property shortages. In summary:

• UK rents averaged £1,335 per month in April, making a 7.4% rise from the previous year.
• Rightmove data shows that the number of new rental listings in England in the first quarter of this year is still 18% lower than it was in the same period in 2019.
• Tenant demand in the rental market continues to outstrip falling landlord supply, pushing rents upward, according to the May RICS UK Residential Market Survey.
• LonRes’s May report revealed an annual rental growth of 3.3% was recorded in May across prime London, with average rents 32.9% above their pre-pandemic average.
• In prime London, rents are forecast to grow by 3.5% in 2025, supported by the high demand and fewer landlords. This opens up opportunities for investors to explore high-quality rental properties and build-to-rent developments.

Looking ahead

Looking ahead, the UK residential property market remains resilient and optimistic. A combination of further expected interest rate reductions, increased property transactions and optimistic growth forecast for UK properties hints at the beginning of a fresh phase in the market. With improving sentiment and more favourable lending conditions, the market seems to be showing cautious signs of regaining momentum.

Opportunities for property investors

As a result, there are a few interesting opportunities to consider. For those looking to purchase outside of London, coastal and countryside areas remain popular for second homes. There is also strong investment potential in the northern regions of the UK, where a great deal of interest is currently focused. City rental properties continue to offer good returns, and there’s growing interest for funding towards small-scale housing developments. If you’re thinking about your next move, this could be a good time to explore your options.

References

Will the Bank of England Cut UK Interest Rates… | Morningstar
5_WEB_May_2025_RICS_UK_Residential_Market_Survey_tp.pdf
Private rent and house prices, UK – Office for National Statistics
Knight Frank increase their growth forecasts for UK house prices – Property Industry Eye
Savills UK | Prime London house prices – Q1 2025
House Price Index: May 2025 – Zoopla
Monetary Policy Report – May 2025 | Bank of England
Transactions jump by a quarter in May: HMRC – Mortgage Strategy
Monthly Briefing: Prime London Market – June 2025 – LonRes