British home prices are set to grow faster than general inflation, while rental costs are expected to rise even more sharply. Despite these trends, affordability for first-time buyers is projected to

improve, according to a Reuters poll conducted from November 11 to 21, which surveyed 21 housing market experts.

Rising rents pose a significant challenge for potential homebuyers, making it harder to save for the deposits needed to secure mortgages, as these costs consume a larger share of disposable income.

The poll predicts that the average price of a British home will increase by 3.1% in 2025 and 4.0% in 2026, aligning closely with forecasts from September. In comparison, general inflation is expected to average 2.3% in 2025 and 2.1% in 2026, according to a separate Reuters survey.

Recent data from the Office for National Statistics revealed that British house prices experienced their fastest annual growth since February 2023 in the 12 months leading to September. However, urban rental costs are forecasted to grow even faster, rising by 4-5% next year, further straining the budgets of prospective buyers.

"The supply of rental properties is decreasing rapidly, especially in urban areas, and this shortage is outpacing the limited supply in the housing market overall. As a result, rents are rising faster than house prices," said Tony Williams of advisory firm Building Value.

He added that fears of higher taxes on property sales are prompting many landlords to exit the rental market. This trend has been exacerbated by finance minister Rachel Reeves’ decision to increase capital gains tax from 10% to 18% in her recent budget.

Despite these challenges, there are signs of recovery in the housing market. British homebuilders, who faced subdued demand for much of 2024, have recently seen improvement, thanks to the Bank of England’s interest rate cuts and supportive policies introduced by the Labour government. Earlier this month, the BoE reduced interest rates for the second time this year, with further cuts of 100 basis points or more expected by the end of 2025.

These lower interest rates are expected to provide some relief to buyers relying on borrowing. Thirteen out of 15 experts polled believe affordability will improve in the coming year.

"While mortgage rates may not drop as much as some hoped, they will still become more competitive, improving affordability even with modest price increases," said Marcus Dixon of real estate advisers JLL.

London, a key market for foreign investors, is expected to see average home prices rise by 3.0% in 2025 and 4.0% in 2026, in line with the national trend.

As the market adjusts to these dynamics, first-time buyers may find some opportunities amid easing mortgage costs, despite the persistent challenges of rising prices and rents.