We are now well into the second half of 2025, and a busy summer period for house sales followed a somewhat flat start to 2025. Savills initially reported, back in November 2024, that mainstream UK house prices would grow by 4% in 2025. In July 2025, growth was reduced down to 1%. It is evident that at the back end of 2024, industry professionals were somewhat optimistic going into 2025, but throughout the year this optimism has shifted. This commentary delves into some influential economic and geopolitical factors affecting the UK housing market at this time.
It is important to firstly mention that sales over the summer period have increased, with Rightmove reporting that agreed sales are 8% ahead of this time last year. This is the best July for sales since 2020. This is mostly because sellers have been price conscious during what would typically be a summer slump in activity. According to Rightmove, perceptive buyers are “benefitting from asking prices which are on average an enticing £10,000 cheaper than three months ago”.
This summer flurry is somewhat artificial, driven by sellers cutting asking prices to boost an otherwise sluggish period. The uptick is principally due to buyers capitalising on deals, an unsustainable trend which is unlikely to be maintained throughout the autumn and winter months.
Global events can directly affect the UK economy, largely impacting upon the construction and supply of new homes.
Initially, the cost of building continues to rise, with the BCIS reporting in July 2025 that building costs will increase by 14% over the next 5 years. The main driver of costs, according to BCIS, is due to labour, whereby increases to National Insurance contributions and the National Living Wage are creating an expected 7.1% annual upsurge in the BCIS Cost Index in Q2 of 2025.
Importantly, there is an enormous skills shortage - mostly thanks to Brexit. Places for People report that more than 140,000 vacancies are unfilled, and this deficit will only continue to worsen the output of new construction. It is reported that 200,000+ EU workers have left the UK construction industry since 2019.
In addition, the industry remains challenged by residual supply chain disruptions from the pandemic, as well as from global conflict such as the war in Ukraine. Resultantly, construction development programmes are continuously extending. This puts a strain on borrowing costs to developers, especially those smaller-medium sized businesses.
Thus, disruptions to the supply of new housing only exacerbate the UK housing shortage, and where supply is constricted, and demand is raised, prices can be raised, occasionally significantly. Housing becomes less affordable to potential buyers, especially first-time buyers and many eventually become priced out of the market.
It is evident that even large-scale global issues can eventually have a knock-on effect on UK housing supply. And that’s without mentioning Trump’s tariffs.
This section delves more into the impact of UK politics and economy on the housing market.
Interest rates play a huge role in shaping the UK housing market. The Bank of England (BoE) base rate has just fallen, dropping to 4%, from 4.25%. The rate fell to 4.25% from 4.5% back in May of this year, and before that in February 2025 from 4.75%. It is clear that this reduction in base rate improves borrowing conditions, but there are negative impacts on savers. The key positive is that the base rate influences the rate at which mortgage lenders charge borrowers.
Whilst these economic changes point to a more positive outlook for borrowers and potential buyers, the RICS Residential Market Survey for July 2025 indicates a relatively “flat picture for activity” in the near future. The survey reports “going forward, respondents envisage a generally flat near-term sales outlook, evidenced by a net balance reading of just +1% being returned (vs +7% previously). At the twelve-month time horizon, sentiment is a little more positive, with a net balance of +8% of contributors anticipating a pick-up in sales activity.”
This goes to show that house prices and buyer confidence go beyond rates of borrowing, there are other economic, social and political factors at play. Stamp Duty thresholds were revised as of 01 April 2025, with the nil rate threshold dropping from £250,000 to £150,000, with first time buyer thresholds dropping from £425,000 to £300,000. This follows a period of relief which allowed more first-time buyers to get onto the property ladder. Increasing costs to purchasing only dampen market activity, whereby potential buyers are losing confidence in the market.
So, the above makes it clear: just because lending conditions are more favourable, this does not automatically improve the activity within the housing market. In fact, industry professionals remain cautious but perhaps quietly optimistic for the future.
This article covers just some of the factors in play both globally, and nationally, which influences the UK housing market. It appears that, despite a slight market flurry over the summer months, the general trend suggests that buyers remain cautious, although with base rates having decreased, the economic landscape may point toward a more optimistic end to 2025.
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