House prices will rise by 3% across the UK in 2025, followed by 3.5% in 2026 and 2.5% in 2027 as the affordability picture improves.

This is according to the latest data from estate agent Hamptons which says 2025 will mark the beginning of a new property market cycle.

The agent suggests that like the market post-financial crisis, it expects London to start outperforming other regions for the first time since 2015 with 4% annual price growth in 2025.

Hamptons predicts just under 1.1 million transactions across  the UK in 2024, rising to 1.2 million in 2025 and 2026.  Higher neutral interest rates and transaction costs than seen in previous cycles will weigh on long-term numbers, resulting in a new norm of 1.3 million moves in 2027.

Rental growth is set to moderate but remain above inflation, with increases of 4.5% forecast in 2025 and 4.0% in both 2026 and 2027.

Between now and the end of 2027,  Hamptons expects rents to rise by 17% across Great Britain, outpacing house price growth of 12.5%.

Commenting on the latest forecasts Hamptons head of research Aneisha Beveridge said: “As the end of 2024 approaches, the mood of the housing market has shifted from trepidation to cautious optimism.  Lower mortgage rates have been the principal catalyst for change, falling more rapidly than we expected.

“Even though an improving affordability picture, driven by lower mortgage rates and robust pay rises, looks likely to fuel price increases and transactions in 2025, higher rates for longer will weigh on long-term growth.”

Beveridge added: “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.  It will also remain a barrier to homeownership for many would-be first-time buyers, limiting longer-term transaction numbers.”

“While the future direction of interest rates seems to have been mapped out, the pace of this journey and its ultimate destination remains uncertain.  Changes to rate expectations remain the key risk to the housing market.  But what seems more certain is that the London market is set to outperform the other regions next year as a new cycle begins.”