Hamptons lowers UK home price forecast on Labour budget measures
UK HOUSE price growth will be weaker than previously expected in 2026 as high interest rates and taxes weigh on the market, according to revised forecasts from Hamptons International.
The broker downgraded its prediction for house price growth in 2026 to 3.5 per cent from 5 per cent, reflecting stubbornly high borrowing costs alongside an economy it described as “fragile” and “lacklustre”.
Measures announced by the Labour government in last month’s budget could halt the housing recovery, Hamptons said, pointing to the potential impact of increases to employer national insurance contributions and a hike to stamp duty on second homes.
“Tax increases will hold back house prices and slow transactions in the prime property markets,” Aneisha Beveridge, head of research at Hamptons said in a report. “The fiscal boost announced in the budget could result in rates staying higher for longer.”
While the Bank of England cut its benchmark last week for the second time this year, market expectations for another reduction in December have largely dissipated due to worries that the spending and borrowing spree outlined by Chancellor of the Exchequer Rachel Reeves in her budget will fan inflation. That could keep mortgage costs higher for longer and muddy the housing market’s recovery.
Households have been left to process the UK’s biggest tax hike in 31 years unveiled as the government seeks to fix public services and spur investment. The worry is that companies will slow pay increases and cut hiring to cope with higher costs, dragging down the recent growth in real incomes that’s helped bring buyers back into the market.
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UK house prices barely grew in October, according to Nationwide Building Society, as buyers retreated ahead of Labour’s fiscal plans. London saw the biggest month-on-month fall in the share of homes selling above asking price last month, Hamptons data show, with the broker downgrading its forecast for house price growth in the capital by 1 percentage point in 2025 and 3 percentage points in 2026.
Still, Hamptons expects house prices to rise by 3 per cent across Britain in 2025 – a forecast it kept unchanged from last year – followed by 3.5 per cent growth in 2026 and a further 2.5 per cent in 2027. It said London is likely to start outperforming other regions for the first time since 2015 next year with 4 per cent annual price growth, with the recovery likely to be led by areas outside prime central districts that are overshadowed by higher taxation.
Based on market views, the base rate could move further downwards in 2025 and reach a “new norm” of about 3.5 per cent in 2026, the broker said. Mortgage rates are likely to fall to their lowest point midway to next year, it added, warning that they are unlikely to be significantly cheaper than at present.
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“Changes to rate expectations remain the key risk to the housing market,” Hamptons’ Beveridge said. “The combined effect of persistently higher interest rates and sluggish economic growth is likely to dampen long-term house price performance compared to previous cycles.” BLOOMBERG
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