Economic summary

News

Over the past month, it’s been mainly doom and gloom – UK consumer price inflation unexpectedly rose to 3.6% in June, its highest annual rate since January 2024, driven by higher motor fuel, transport and food costs; the Bank of England’s Monetary Policy Committee nonetheless held Bank Rate at 4.25% in mid‑June, even as markets priced in a 25‑basis‑point cut to 4% in August amid easing services price pressures and slowing wage growth; official data showed GDP contracted by 0.1% in May, marking a second consecutive monthly decline and underlining concerns about the economy’s resilience amid trade uncertainties and the expiry of home‑purchase tax incentives; labour market figures reflected this cooling, with unemployment edging up to around 4.6%, its highest since early 2021, while regular pay growth slowed to about 5%, dampening the scope for household spending.

In financial markets, the FTSE 100 notched a fourth consecutive week of gains, buoyed by rate‑cut optimism and encouraging corporate earnings, even as sterling traded mixed against major currencies; Chancellor Rachel Reeves responded with a series of reforms to cut red tape, ease mortgage affordability checks and launch a government‑backed mortgage guarantee scheme aimed at first‑time buyers; however, cost‑of‑living pressures persist, with domestic energy price caps still elevated despite a modest 7% reduction in July, and food price inflation at its highest since February 2024, keeping household budgets under strain.

Collectively, these mixed signals create a cautious backdrop for the housing market, where mortgage costs, consumer confidence and broader macroeconomic uncertainties will shape price trajectories in the coming months.

Indicators

• Average house prices increased slightly to £269k in July
• Mortgage rates for 60 % LTV have slightly ticked up to 4.17%

Current growth rates

Over the past year, the strongest house‑price growth has been concentrated in more affordable northern and Midlands areas—Blackburn with Darwen leads at +17.5 %, followed by Newcastle (+13.4 %), Middlesbrough (+12.7 %) and Bassetlaw (+12.6 %)—with Milton Keynes (+11.7 %) the sole South‑East outlier in the top five. At the other extreme, high‑cost southern and London markets have slipped back: Islington is down –7.7 %, Hammersmith & Fulham –5.8 %, Bath & North East Somerset –5.9 %, Cotswold –5.7 % and South Hams –5.3 %. This split highlights a continued shift of buyer demand towards more affordable regions and away from historically expensive markets.

Predictions

Overall

The model suggests only modest nominal growth in UK house prices, edging up from the current c. £269 k to roughly £276 k in one year and £285 k in two years, before reaching about £304 k in five years.

Regional

Short term (1 year): most regions see modest one‑year gains of around 2–4 per cent, led by Scotland (c. 4.4 per cent), Wales (4.0 per cent) and the East Midlands (3.7 per cent), while London’s market remains almost flat at just 0.7 per cent. This immediate divergence underlines buyers’ continued preference for more affordable areas even in the near term.

Medium term (2–3 years): over the next two to three years, annualised growth climbs to about 5–9 per cent in high‑growth regions—Northern Ireland (8.8 per cent), Wales (8.0 per cent) and the North West (7.4 per cent)—whereas the South East (c. 5 per cent) and East of England (5 per cent) stay more subdued and London languishes below 2 per cent. The widening gap suggests that regional cycles will diverge further as affordability and rental yields drive demand.

Long term (4–5 years): by years four and five, cumulative five‑year gains range from a mere 3 per cent in London to over 23 per cent in Northern Ireland, with former low‑price areas such as the North West, Wales and Scotland all posting double‑digit rises. Such stark dispersion points to deepening regional imbalances, driven by enduring affordability constraints and shifting buyer preferences over the longer term.

Local

In the year ahead, more modest but still notable gains of around +6–8 % are forecast in Bassetlaw (East Midlands +7.58 %), Knowsley and Blackburn with Darwen (both North West +7.31 / +6.86 %), Vale of White Horse (South East +6.78 %) and Oldham (North West +6.46 %). By contrast, London’s premium boroughs appear particularly vulnerable in the short term—Tower Hamlets (–8.30 %), Barnet (–7.04 %) and Hammersmith & Fulham (–5.13 %)—along with the City of Aberdeen (Scotland –6.16 %) and Cotswold (South West –4.88 %). This suggests that affordability pressures and shifting demand may quickly weigh on traditional southern strongholds, even as more value‑oriented regions hold up.

Looking two years out, the North West again dominates the upside with Knowsley (+14.60 %), Blackburn with Darwen (+13.45 %) and Oldham (+13.02 %), joined by East Midlands districts South Derbyshire and Bassetlaw (both +13.33 / +13.02 %). London boroughs once more occupy the lower end of the spectrum—Tower Hamlets (–9.87 %), Hammersmith & Fulham (–3.50 %), Barnet (–3.41 %) and Islington (–2.95 %)—while Aberdeen remains under pressure in Scotland (–6.89 %). The pattern reinforces a growing north–south split, with northern and Midlands locations likely to outperform their southern peers over the medium term.

Over the next five years, the strongest overall growth is predicted in several North West authorities—Knowsley (+29.96 %), Blackburn with Darwen (+28.31 %), Oldham (+27.82 %) and Cheshire East (+25.85 %)—alongside Armagh City, Banbridge and Craigavon in Northern Ireland (+26.51 %). In contrast, London boroughs Ham­mersmith & Fulham, Barnet, Hackney and Tower Hamlets sit among the weakest performers (–3 to –19 %), joined by the City of Aberdeen in Scotland (–18.64 %). This stark divergence underscores an ongoing shift towards more affordable northern and Northern Irish markets, while many high‑priced southern and urban areas could see real‑terms price corrections.

Conclusion

In summary, the forecasts point to an enduring north–south divide in UK housing, with former lower‑price areas—particularly in the North West and parts of Northern Ireland—set to enjoy the strongest growth, while many London boroughs and other southern markets face stagnation or mild declines. This divergence reflects deep‑seated affordability pressures and shifting buyer preferences that are likely to intensify over time. Together, these trends suggest that regional imbalances will remain a defining feature of the UK property landscape for years to come.