As any tortoise worth its salt will tell you, going slow and steady isn’t always a bad thing. The housing market in 2025 has certainly given us a chance to catch our breath in the Savills Research team, following the post-pandemic boom and then the mini-budget-induced drop in house prices over the last five years. But the more subdued market of the last year reflects weaker sentiment and concerns about the economy and tax environment which might leave buyers and sellers feeling, like house prices, a bit flat.

House prices have remained steady in 2025 so far, growing by 0.8% according to Nationwide. For most of the year, relatively high levels of supply have been set against weaker demand in the RICS survey, creating a buyer’s market in which upwards pressure on prices has been limited. The latest forward indicators from the RICS suggest that both demand and price growth will be fairly sluggish for the rest of this year and into early 2026 as well—the two measures have seen average net balances of -15 and -20 in the third quarter of 2025, indicating broadly negative sentiment.

Unlike the recent past, this weaker demand is not driven by increasing interest rates or worsening affordability—from a mathematical perspective, housing is actually more accessible now than at any point in the last three years, thanks to lower mortgage rates, lower real house prices and looser mortgage regulation. But as has become clear this year, none of that matters unless buyers feel positive enough about the future to commit to buying a home (we should remember that for most, it is the largest purchase they will ever make). It is that weak buyer sentiment which is thwarting further growth in prices at the moment, despite improving affordability.

It’s the economy, stupid!

As is often the case, the performance of the wider economy is key in helping us understand both current sentiment and the future direction of the housing market. Weak economic growth forecasts have meant that the government has less fiscal wiggle room than it thought it might, and all signs are pointing to an increase in tax to make up the difference. Buyers will therefore have a keen eye on the Budget coming up later this month, and are approaching the housing market with caution in the meantime.

The outlook for house price growth has previously relied on a continued fall in interest rates, which would encourage more borrowing and more investment, both in the wider economy and in the housing market. But inflation has risen to 3.8% in August, which has made economists less confident that these interest rate cuts will materialise. Oxford Economics, our economic forecaster of choice, is now expecting just 50 basis points (bps) of cuts to the base rate by the end of 2026, lower than the 100 bps they previously expected. A higher interest rate (and therefore mortgage rates) next year will limit the amount of house price growth we can expect. Alongside this, Oxford Economics also expects the labour market to weaken in 2026, meaning slightly higher unemployment and falling wage growth, albeit from an elevated level of between 4% and 8% in the last five years.

In all, it’s understandable why buyers are acting cautiously and the evidence points to a fairly muted year in 2026. We are forecasting house price growth of 2.0% on the year, an improvement compared to this year, but still lower than inflation and wage growth, meaning house prices will continue to fall in real terms.

Better times ahead?

While the near term will probably remain quiet, it seems only a matter of time before buyers begin to take advantage of improved affordability. Interest rate cuts may be slower, but they will still play a role in boosting demand and driving price growth. This will be aided by the relaxation of mortgage regulations earlier this year, which means some buyers can borrow more relative to their incomes (read more about that here). And the UK economy looks materially stronger beyond 2026, with low levels of inflation, rising GDP growth and falling unemployment, according to Oxford Economics. We must therefore assume that sentiment around the housing market will be better by the middle years of our forecast window.

Overall, we expect house prices to rise by 22.2% in the next five years. The pattern of that growth will track the improvement in the economy, peaking in 2028 and 2029 at 5.0% and 5.5%, before dropping back to 4.0% in 2030, as some of the capacity built up in recent years is used up.

This level of price growth, alongside an improvement in mortgage rates and growth in incomes, means we expect affordability to continue to improve for mortgaged buyers until 2028, before plateauing after that. However, while mortgage affordability will continue to fall back from the highs of the last couple of years, it will remain above the level enjoyed in the ultra-low interest rate environment of the late 2010s.

Our forecast of 22.2% growth over the next five years suggests that house prices will grow in real terms and will grow more quickly than household incomes. As recent history tells us, this is no longer the default position for the housing market, where prices in real terms are lower today than they were in 2005. Lucian Cook discusses the relationship between inflation and house prices (and why our forecasts always seem to tend towards 20% growth over five years!) in Adjusting for inflation.

^{Note: These forecasts apply to average values in the second-hand market, new build values may not move the same rate}

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