UK House prices will rise by just 2.5% in 2025, as higher mortgage rates have an effect, Knight Frank has predicted.

The firm reacted to rising borrowing costs since the Autumn Budget, which is pushing lenders to raise mortgage rates. However, looking further ahead, Knight Frank expects house prices to increase by 3% in 2026 and 3.5% in 2027.

Rents are expected to surpass house prices in the next few years, with an increase of 4.0% in 2025, 3.5% in 2026, and 3.5% in 2027.

Knight Frank stated: ‘In simple terms, we don’t yet know if the Budget will work and therefore by how much rates could fluctuate in the years ahead. However, we have seen a jump in borrowing costs since the Chancellor set out her economic plans and expect more downwards pressure on prices and transaction volumes in the short-term. Indeed, gilt yields are notably higher than recent Office for Budget Responsibility forecasts. As a result, mortgage lenders are reluctantly pushing rates higher, which will eventually feed through into house prices.’

Knight Frank expects UK house prices to increase by 4.5% in both 2028 and 2029, taking its five-year price forecast to 19.3%.