POLL-British home prices to rise faster than inflation, rents even more

British home price increases will outpace overall inflation and rental costs will rise even faster although affordability for first time homebuyers will improve, according to a Reuters Nov. 11-21 poll of 21 housing market experts. Higher rent adds to the struggle for buyers to save the deposit needed to secure a mortgage to get on the property ladder as it eats into their disposable income.

British home price increases will outpace overall inflation and rental costs will rise even faster although affordability for first time homebuyers will improve, according to a Reuters Nov. 11-21 poll of 21 housing market experts.

Higher rent adds to the struggle for buyers to save the deposit needed to secure a mortgage to get on the property ladder as it eats into their disposable income. The average value of a British home was expected to rise 3.1% next year and 4.0% in 2026, barely changed from predictions in a September poll. General inflation will average 2.3% and 2.1% in these two years, a separate Reuters survey showed.

House prices rose at the fastest pace since February 2023 in the 12 months to September, figures from the Office for National Statistics showed on Wednesday. But urban rental costs were predicted to increase faster than prices, rising 4-5% next year and so squeezing the budgets of prospective purchasers.

"The restriction in supply of rental properties is rising quickly and it is outpacing the shortage of supply in the housing market - and thus rents will outpace house prices axiomatically," said Tony Williams at advisory firm Building Value. "The supply of rental properties, especially in urban areas is dropping sharply as owners fear greater tax on disposals."

In her maiden budget late last month, finance minister Rachel Reeves increased capital gains tax to 18% from 10%. However, British homebuilders, after battling subdued demand for most of 2024, have witnessed signs of an improvement in recent months, spurred by the Bank of England's interest rate reductions and supportive policy measures introduced by the Labour government.

Giving some respite to buyers needing to borrow to fund their purchase, the BoE cut interest rates earlier this month for a second time this year and is expected to reduce them by another 100 basis points or more by end-2025. That prompted 13 of 15 respondents to an additional question to say affordability would improve over the coming year.

"More competitive mortgage rates, albeit not quite as low as some hoped, will help with affordability despite the forecast for modest price rises," said Marcus Dixon at real estate advisers JLL. In London, seen as a good investment opportunity by foreign buyers, the average home price will rise 3.0% next year and 4.0% in 2026, according to the poll.

(Other stories from the Q4 global Reuters housing poll)

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