Despite an improving interest rate outlook, asking prices this spring will need to reflect the wide choice on offer for buyers, according to Knight Frank.
The estate agency nudged up its 2025 UK house price forecast to 3.5% from 2.5% last week, thanks in part to cheaper mortgage borrowing rates.
Tom Bill, head of UK residential research at Knight Frank, said: “It was a marginal increase [in projected house price growth] considering how much the interest rate outlook has improved. Markets expect a bank rate of about 3.5% this time next year, which compares to an estimate of more than 4.25% in early January.
“The forecast also shows how we think the momentum in year-on-year growth will be largely sideways. The annual rate is currently just under 3.5%, according to both the Nationwide and Halifax.”
Why such a tentative increase this year?
Bill explained: “We think demand could be kept in check by higher inflation or a prolonged bout of “guess the tax rise” before the Budget this autumn.”
However, another factor keeping growth in check is the imbalance between supply and demand.
According to Knight Frank, the ratio of new prospective buyers (demand) to sales instructions (supply) was 5.4 in April.
Outside of Christmas holidays, which can skew the figures, that was the lowest it has been since the middle of 2018. Buyer confidence was low seven years ago due to fears of a “no deal Brexit” and the accompanying domestic political instability.
This time round, consumer confidence has been hit by global trade tensions and domestic economic pressures. Meanwhile, supply has risen for reasons that include the March stamp duty deadline, the fact selling plans were delayed due to last year’s election and Budget, and a degree of financial distress as mortgage rates normalise.
There is also a growing number of landlords trying to sell due to upcoming legislative changes.
The result is that new UK sales instructions were about a fifth higher than the five-year average (excluding 2020) in the first four months of the year, and the number of new prospective buyers was a fifth lower.
Bill commented: “The stamp duty deadline exacerbated the situation but only up to a point. The maximum saving was £2,500 for anyone transacting before April, or £11,250 for first-time-buyers, which produced a year-on-year jump of 104% in transactions in March.
“Despite the financial incentive to complete before April, the average ratio of new buyers to new sales instructions was 7.4 in the first three months of the year, which compared to 8.8 in the same period in 2024 and 8.9 the year before.
“The result is that house price growth looks likely to be stronger in the autumn than the spring, particularly if looser lending rules come into effect later this year. Annual growth has narrowed in recent months as the imbalance has formed.”
Anyone wishing to avoid a prolonged wait before selling this year should bear in mind just how much of a buyers’ market it has become.
“Buyers are able to take their time at the moment because they have so much to choose from,” said Andrew Groocock, chief operating officer of the estate agency business at Knight Frank.
“That sort of competition means sellers need to get the asking price right when the property is first launched. Even after a reduction, the risk is that a property has already become stale in the minds of buyers, which means it can then take longer to sell or the chances of it falling through are higher.”
