Market Update Resilient Housing Activity Faces Sticky Inflation And Rate Headwinds

The UK property market continues to defy expectations this summer. While many predicted a slowdown due to high interest rates and inflationary pressures, the reality on the ground tells a more nuanced story—marked by resilience, regional variation, and evolving buyer strategies.

 

Housing activity remains strong, particularly among upsizers, cash buyers, and homeowners relocating for lifestyle reasons. According to the latest Rightmove House Price Index, the average asking price for UK homes in July reached a new record high of £381,332, reflecting a 0.5% month-on-month increase and a 2.1% annual rise. Buyer demand has remained firm throughout Q2 and into Q3, bolstered by a robust jobs market, competitive mortgage incentives, and pent-up demand from the quieter winter months.

 

Listing volumes have also seen a healthy rise, with 12% more new properties hitting the market compared to July 2024, offering greater choice and slightly tempering the aggressive price competition seen earlier this year. This increase in stock is helping to rebalance the market, although in high-demand areas like the South East, London fringes, and commuter towns, homes priced accurately are still receiving multiple offers.

 

However, economic signals remain mixed, and concerns persist around affordability and the broader cost-of-living landscape. UK inflation, measured by the Consumer Prices Index (CPI), stood at 3.4% in June, down slightly from 3.5% in May but still well above the Bank of England’s 2% target. Inflation has proven more stubborn than expected, particularly in the services sector, where strong wage growth and demand for travel, hospitality, and leisure continue to fuel price rises.

 

This has led to a significant shift in market expectations around interest rates. Earlier in 2025, many forecasted a series of rate cuts by summer. But those hopes have faded. While the Bank of England held the base rate steady at 4.25% in both June and July, comments from policymakers and recent inflation data suggest that rate cuts may now be delayed until late 2025 or even early 2026. This shift has impacted SONIA swap rates, which underpin fixed mortgage pricing. As a result, several lenders have increased their fixed-rate offerings slightly, reversing the downward trend seen in Q1.

 

The Office for Budget Responsibility (OBR) has also reinforced the expectation of structurally higher borrowing costs. Its latest projection anticipates the average mortgage rate on outstanding stock will rise from 3.7% in 2024 to 4.7% by 2028, and hold near that level through to 2030. This outlook reflects a new reality: the ultra-low interest rate environment of the 2010s is unlikely to return in the foreseeable future.

 

Despite these pressures, mortgage lenders are competing hard for quality borrowers. Many are offering cashback incentives, fee-free remortgage products, and flexible underwriting criteria—particularly for borrowers with stable incomes, low loan-to-value ratios, or strong professional backgrounds. First-time buyers continue to face hurdles due to tighter affordability tests and higher rates, but family-assisted borrowing, longer mortgage terms, and shared ownership schemes remain viable options.

 

For property investors, the landscape is more complex. While rental yields remain strong in many urban centres and industrial towns, tighter lending rules, higher taxation, and increased regulation have dampened the momentum seen in 2021–22. However, well-capitalised landlords are still seeing opportunities—particularly when leveraging corporate structures or focusing on mixed-use and semi-commercial assets.

 

In summary, while the UK housing market remains active and adaptive, the broader economic context suggests that interest rates will stay higher for longer. Buyers, movers, and investors alike should consider how rate trends, inflation persistence, and lender appetite may affect both short-term affordability and long-term financial planning.

 

For those navigating this evolving market, now is a pivotal time to seek expert advice. At AWS Private Finance, we provide bespoke mortgage and protection solutions, ensuring our clients make smart, informed decisions—whether buying their first home or expanding a property portfolio.