The UK residential market reported a strong start, supported by improved mortgage affordability and changes to stamp duty. However, Q3 forecasts indicate that activity is being dampened, most likely due to uncertainty ahead of the upcoming Autumn Budget.

In the rental sector, rental growth stood at 5.7% in the year to August 2025 — the lowest annual reading since early 2023. London experienced a sharper slowdown, falling from 11.5% in November 2024 to 5.7% in August 2025. Across the UK, rental values on new tenancies increased by just 0.2% in the year to August 2025, while in London they were 0.9% lower than the same time last year.

With many landlords expecting to sell by the end of 2026, sentiment remains weak. Following the introduction of the Renters’ Rights Bill and the increase in additional home stamp duty, only 6% of landlords expanded their portfolios in the past 12 months, while over a fifth reduced their holdings.

According to CBRE, rents are forecast to increase by 3.9% across the UK in 2025 — a notable slowdown from 9% in 2024. Over the next five years, rental growth is expected to total 16.4%, averaging 3% per year. In London, rents are projected to underperform in the short term due to affordability constraints, with an average of 38.6% of income spent on rent. However, over the five-year forecast period, the persistent supply shortage is expected to drive stronger rental growth in London than in the rest of the UK.

The sales market across the UK began the year strongly, with 635,100 transactions reported in H1 2025 — a 12% increase compared with H1 2024. With record levels of stock on the market, sales volumes have risen following stamp duty changes and improved mortgage affordability. UK house prices increased by 2.8% in the year to July 2025, while in London values rose by just 0.8% in H1.

As more landlords choose to sell and tenants face higher rental costs, some are motivated to make their first purchase. Sales activity is therefore expected to remain supported by high stock levels, with the RICS survey reporting the highest level of stock per surveyor (45) since 2016. Given improving mortgage affordability, CBRE forecasts total sales volumes of 1.2 million in 2025. However, uncertainty surrounding the Autumn Budget is expected to weigh on activity in the near term.

CBRE forecasts that UK house price growth will peak at 5.9% in 2026, with London closely following at 5.8%. Over the next five years, London is expected to record the strongest cumulative growth of 25.1%, driven mainly by improving affordability.

Finally, London’s new homes market is on track to hit a record low, with just 3,300 sales in H1 2025. Since 2022, new-build sales in London have struggled due to the loss of Help to Buy, higher interest rates, and increased taxation on second-home purchases. Sales volumes are expected to remain subdued into 2026; although buyer affordability will gradually improve, the significant shortage of new supply and the lack of off-plan investors will continue to limit activity.

This information is based on the CBRE UK Residential Forecasts Q3 2025 Report.