As we head into autumn, the housing market finds itself in a familiar holding pattern — steady, but cautious. The summer months brought a modest uptick in activity, with buyer demand buoyed by improving sentiment and falls in mortgage rates. Yet beneath the surface, the market remains finely balanced, shaped by a complex mix of economic forces and policy uncertainty.
The Bank of England’s decision in September to hold the base rate at 4.0%, with a 7–2 vote split, was widely expected. But the tone was more hawkish than anticipated. The Monetary Policy Committee (MPC) warned that inflationary pressures remain “prominent”, and signalled that rate cuts may be slower and more measured than previously hoped. Several leading bank economists now forecast that the base rate will remain at 4.0% for the next 12 months, with only limited easing expected in late 2026.
This shift in expectations has already begun to ripple through the mortgage market. Swap rates, which underpin mortgage pricing, have crept higher - the average 2-year swap rate rose from 3.59% in early August to 3.74% today. That’s often the difference between lenders being able to off er sub-4% deals or not. In response, we’ve seen lenders begin to nudge up rates again, and depending on how hot inflation readings come in, they may edge higher from here. Based on the current outlook, mortgage rates are only likely to rise — albeit gradually — in the months ahead.
Still, the outlook remains fluid. A softer inflation print, or signs of weakening wage growth could quickly shift the narrative. A change in the economic data could alter the trajectory overnight, reminding us how sensitive the market remains to macro signals.
On the ground, the picture is mixed. More affordable pockets of the country continue to outperform, driven by buyers seeking space and value. But prime areas remain subdued, with prices flat or falling in real terms.
According to the ONS, Greater London saw just 0.7% annual price growth in August, leaving prices 3.4% below their August 2022 peak. Over the past five years, London house prices have risen just 8%, while inflation has climbed 28% - meaning real values have declined. That’s helped improve affordability slightly, but it’s also dampened enthusiasm among discretionary sellers.
Nationally, prices have held up better. Average property values across Great Britain rose 2.8% year-on-year in August, up from just 0.3% a year earlier. But this headline figure masks regional disparities. Compared to London, the more affordable South East fared slightly better at 1.2%, while the South West, which saw more rapid price growth post-Covid, posted a 1.4% annual rise.
Meanwhile, speculation around property taxation is adding another layer of uncertainty. With the Budget due in November, three major proposals have been floated; shifting stamp duty liability from buyer to seller, replacing stamp duty and council tax with a single annual property tax, and removing the capital gains tax (CGT) exemption on main residences.
The first two would require a complete overhaul of the current system – a process likely to take years. But the third, removing the CGT exemption on main residences, could be implemented far more quickly. The framework already exists for second homes, making this a relatively straightforward legislative tweak, albeit one that comes with significant social implications. If it gains traction, we could see a flurry of activity from longstanding owners in prime areas looking to sell before any changes take effect.
The labour market is also softening. Unemployment has edged up to 4.7%, and vacancies are falling. Yet wage growth remains resilient, with regular earnings up 5.0% year-on-year – supporting affordability, albeit modestly in real terms.
All told, the market remains resilient. Transaction volumes are stable, and buyer demand is holding up. But the horizon is clouded - not just by economic headwinds, but by the potential for policy shifts that could reshape the landscape. For now, it’s steady as she goes. But with inflation still sticky and reform rumours swirling, the final months of 2025 may yet bring surprises.
