The UK’s housing market continues to show moderate growth despite headwinds. The 2.60% YoY rise in house prices in November 2025 marks a slowdown from the 3.00% increase recorded in October. This deceleration follows a volatile summer where prices fluctuated between a peak of 3.70% in August and a brief dip into negative territory in mid-November. The current pace remains above the 12-month average of roughly 1.80%, indicating resilience amid tightening financial conditions.

Drivers this month

• Persistent demand in London and Southeast regions supporting price gains.
• Rising mortgage rates dampening affordability, especially outside prime areas.
• Supply constraints continuing to limit new listings, sustaining price floors.

Policy pulse

The Bank of England’s recent rate hikes, pushing the base rate above 5%, have started to weigh on mortgage approvals. The HPI reading remains above the Bank’s inflation target of 2%, but the cooling trend aligns with the central bank’s goal to temper housing-driven inflation pressures.

Market lens

Immediate reaction: GBP/USD slipped 0.30% post-release, reflecting concerns about slower housing growth impacting consumer confidence. UK 2-year gilt yields edged up 5 basis points, signaling cautious investor sentiment on near-term economic growth.

House price trends are intertwined with broader macroeconomic indicators. UK GDP growth slowed to 0.20% QoQ in Q3 2025, while unemployment held steady at 4.10%. Inflation remains elevated at 4.50% YoY, driven partly by energy and food costs. Consumer confidence indices have dipped modestly, reflecting concerns over cost-of-living pressures and borrowing costs.

Monetary Policy & Financial Conditions

The Bank of England’s monetary tightening cycle, now in its 10th consecutive hike, has pushed mortgage rates above 6% for the average borrower. This has reduced affordability, particularly for first-time buyers, and contributed to a slowdown in housing transactions. Credit availability remains tight, with lenders imposing stricter criteria amid economic uncertainty.

Fiscal Policy & Government Budget

Government measures to support housing supply, including increased funding for affordable homes and stamp duty relief extensions, have had limited immediate impact. The fiscal stance remains cautious, focusing on deficit reduction, which constrains large-scale stimulus for the housing sector.

External Shocks & Geopolitical Risks

Global energy price volatility and ongoing geopolitical tensions in Eastern Europe have added inflationary pressures. Brexit-related trade frictions continue to affect construction material costs, slowing new housing projects and reinforcing supply-side constraints.

Drivers this month

• London and Southeast regions contributed 0.15 pp to overall growth.
• Mortgage affordability pressures subtracted approximately 0.10 pp.
• Supply shortages added 0.12 pp by limiting market inventory.

Policy pulse

The HPI remains above the Bank of England’s 2% inflation target but below recent peaks, suggesting monetary policy is gradually cooling housing inflation without triggering a sharp downturn.

Market lens

Immediate reaction: UK gilts saw a modest sell-off, with 10-year yields rising 7 basis points, reflecting investor caution. The FTSE 100 dipped 0.40%, weighed by financials sensitive to housing market trends.

Looking ahead, the UK housing market faces a mix of supportive and constraining factors. We outline three scenarios for HPI growth over the next 12 months:

Bullish scenario (20% probability)

• Inflation eases faster than expected, allowing rate cuts by mid-2026.
• Government accelerates housing supply programs, easing shortages.
• Consumer confidence rebounds, boosting demand and prices by 4-5% YoY.

Base scenario (55% probability)

• Monetary policy remains tight but stable, with rates plateauing.
• Supply constraints persist, supporting moderate price growth.
• HPI growth stabilizes around 2-3% YoY, consistent with recent trends.

Bearish scenario (25% probability)

• Economic slowdown deepens, pushing unemployment above 5%.
• Mortgage defaults rise, triggering price declines of 1-2% YoY.
• Geopolitical shocks exacerbate inflation, forcing further rate hikes.

Structural & Long-Run Trends

Long-term drivers such as demographic shifts, urbanization, and evolving work patterns continue to underpin housing demand. However, affordability challenges and regulatory changes may temper future price growth. The market’s resilience amid tightening conditions suggests structural support but also signals limits to rapid expansion.

The November 2025 UK House Price Index YoY reading of 2.60% reflects a housing market adapting to higher interest rates and inflationary pressures. While growth has slowed from recent peaks, it remains above historical averages, indicating underlying strength. Monetary tightening and supply constraints are key forces shaping this dynamic. Investors and policymakers should monitor evolving financial conditions, fiscal support measures, and external risks to gauge the market’s trajectory. The balance of risks suggests moderate growth ahead, with downside risks linked to economic shocks and affordability pressures.