Reuters poll: UK home prices to rise less than previously thought on fears of higher borrowing costs

By Jonathan Cable

LONDON, June 8 (Reuters) - British home prices will rise less than previously predicted this year and dip in the once flourishing London market as expectations for higher borrowing costs and rampant inflation shut the door for many potential buyers, a Reuters poll of housing analysts found.

The average cost of buying a property will increase 1.8% this year, less than the 2.5% seen three months ago, the May 26-June 8 poll found. Median forecasts for 2027 and 2028 were unchanged at a 3.0% rise.

"The recent uptick in mortgage rates, partly driven by global uncertainty and the war in the Middle East, is likely to weigh on house price growth in the near term," said Aneisha Beveridge at estate agency Hamptons Property.  

"Higher borrowing costs reduce purchasing power and tend to cool demand, particularly in more expensive markets."

Home prices unexpectedly fell in May, according to data from mortgage lender Halifax on Friday.

Prices in London - previously a hotbed for foreign investors - will fall 0.3% this year but recover and rise 2.0% in 2027 and 3.0% in 2028, the poll found.

When asked what were the two biggest constraints for first-time buyers, respondents largely settled on three - the high deposit required, elevated mortgage rates and inflated prices.

"Saving for a deposit remains the single biggest barrier to homeownership, particularly in higher-value markets such as London where buyers must accumulate a substantial amount of capital before they can even begin their homebuying journey," said Marc Von Grundherr at estate agency Benham and Reeves.

"House prices remain the second major obstacle."

The average asking price of a first home, excluding inner London, was 228,048 pounds ($303,897) in May, property website Rightmove said last month, making acquiring the usual 10% deposit for a mortgage a stretch for many wanting to get on the property ladder.  

TO LET

An increase in rental costs will largely outstrip that of buying over the next few years as supply dips due to some property investors leaving the letting market as the government's Renters' Rights Act, which came into effect last month, puts additional burdens on landlords.

Rental fees in the capital will increase 3.0% this year and the following two, according to the latest survey - little changed from last quarter's poll.

Urban home rents will rise 3.3% in 2026, then 3.0% next year and 2.5% in 2028, the survey showed.

"Going forward there is only one way rents are going i.e. “up” - and this is due to rising household formation and a shortage of supply of both new build and existing accommodation," said Tony Williams at advisory firm Building Value.

British buy-to-let lender Paragon Banking Group lifted its annual net interest margin forecast but flagged softer consumer and business sentiment amid political and geopolitical uncertainty.

(Other stories from the Q2 Reuters housing market polls)

($1 = 0.7504 pounds)

(Reporting by Jonathan Cable; Polling by Debrah Gomes and Indradip Ghosh; Editing by Kirsten Donovan)