UK Home Prices Set for Solid Gains Amid Falling Borrowing Costs

British home prices are expected to rise in the coming years despite inflation, improving affordability for first-time buyers due to lower borrowing costs. However, rents will increase at a faster pace, making it difficult for potential buyers to save. The Bank of England's interest rate cuts are expected to stabilize the market.

British home prices are projected to see significant gains in the next two years, outpacing general inflation, according to a Reuters poll of housing market experts. This is expected to boost affordability for first-time buyers due to lower borrowing costs.

However, those saving for a cash deposit will face surging rent prices, which will eat into their disposable income, complicating efforts to secure a mortgage. The poll of 21 analysts anticipates home values to rise by 2.5% this year, 3.0% in 2025, and 4.0% in 2026, largely unchanged from earlier forecasts.

Expectations for falling interest rates, as highlighted by Mike Scott of Yopa, are a key driver. The Bank of England, after sharply increasing rates post-COVID-19, has started trimming them. By the end of 2025, rates are expected to drop from 5.00% to 3.75%, aiding the housing market's stability.

(With inputs from agencies.)