As the year draws to a close, major platforms have been releasing their annual reports. Having closely followed reports from leading research institutions, lansha presents a dedicated year-end review—bringing together the performance of the UK residential market in 2025 and the impact of the Autumn Budget introduced in November. This analysis examines the market through four key dimensions, outlines the overall trajectory of the year, and offers a forward-looking view on trends for the year ahead.
Overall Market: Price Correction and Demand Polarisation
According to the latest quarterly data, average prices in Prime Central London (PCL) fell by 7.8% year on year, marking the first time this year that transaction data and market sentiment have declined in tandem. From a structural perspective, the market is showing clear signs of polarisation.
Properties priced below £2 million have become the main driver of transactions, accounting for 66% of total sales in the PCL market. Transaction volumes in this segment increased by 4.2% year on year. However, prices in this bracket are highly sensitive to market conditions and have been a key factor dragging down overall average values.
In contrast, the ultra-prime segment priced above £10 million has remained subdued. Transaction volumes are significantly lower than in the mid- to lower-priced market, although prices have proven relatively resilient, declining by just 4.9% year on year. The continued absence of global high-net-worth buyers means there are currently few clear signs of recovery in this segment.
In the rental market, the pace of rental growth has slowed noticeably. Average rents in Prime Central London rose by just 0.5% year on year, down from 1.4% in the previous quarter, indicating a broadly stabilising trend. Demand has also become increasingly segmented.
Smaller, more affordable rental properties with weekly rents between £500 and £1,000 remain in strong demand, with transaction volumes rising by 5.8% quarter on quarter. Graduates and international students continue to underpin demand, allowing landlords to achieve close to asking rents, with average discounts of just 1.8%.
By contrast, high-end rental properties with weekly rents above £2,000 are facing greater pressure. Tenant bargaining power has increased, resulting in average discounts of around 7.2%.
A notable structural shift is the role of intergenerational wealth transfer in creating new opportunities. Over the past decade, average prices per square foot in Prime Central London have fallen by a cumulative 19.1%, while prices in commuter towns have continued to rise. As a result, owners of larger homes in commuter locations can now exchange their properties for 67% more living space in central London compared with ten years ago. This price differential is enabling a new generation of wealth recipients to enter the Prime Central London market, creating a potential source of future demand.
Investment Trends: Strong Focus on Standing Assets, Steady New-Build Activity
Since the start of 2025, investment strategies in the UK residential market have increasingly favoured standing assets. By the third quarter, transactions involving existing housing stock accounted for 43% of all residential transactions, up sharply from the five-year average of 23% and representing a historic high. Investment into existing residential assets reached £722 million, just £10 million below the market peak recorded in 2022. This reflects a clear preference for stable, income-generating assets amid heightened development uncertainty.
The multifamily sector has been particularly active in the standing-asset space. The third quarter saw the largest single multifamily asset transaction ever recorded in the UK. Over the first nine months of 2025, the average value of single multifamily transactions reached £85 million, more than 50% above the five-year average, with large, operational assets attracting the greatest investor interest.
Investment in new-build residential projects has not stalled despite the strong performance of the standing stock market. Between January and September 2025, investment in new multifamily developments increased by 20% year on year to £960 million, delivering close to 4,000 new homes. Several major joint-venture schemes were launched during the year, including a partnership to deliver 414 homes in Outer London and a forward-funded scheme comprising 494 homes in a prime area of Manchester, underscoring long-term investor confidence in the new-build sector.
Across the broader rental residential market, the third quarter delivered a strong performance, with total investment reaching £977 million, reversing the seasonal weakness typically seen during the summer months. Single-family rental homes accounted for 45% of total investment year to date, with transaction volumes of approximately £1.5 billion. While this figure is lower than the same period in 2024, it remains well above 2023 levels. The average deal size stood at £44 million, with three transactions exceeding £100 million, providing a stable foundation for the market.
Impact of the Autumn Budget
The most significant contribution of the Autumn Budget has been the long-awaited return of policy certainty. In the months leading up to the announcement, uncertainty around fiscal policy had slowed market activity. The clarification of policy direction has helped restore confidence among buyers and sellers, laying the groundwork for improved market activity in the year ahead.
Tax policy changes have emerged as a key variable influencing the residential market. The Budget confirmed an increase in the business rates multiplier to 2.8 pence, well below the legislated maximum of 10 pence, providing taxpayers with greater financial certainty. In addition, permanent multipliers discounts of 5 pence and 10 pence were introduced for the retail, leisure, and hospitality sectors. Although less generous than the previous temporary relief of up to 75%, these measures are expected to support long-term stability in the affected industries.
In the residential sector, the introduction of a high-value council tax surcharge from 2028—ranging from £2,500 to £7,500 per year for properties valued above £2 million—has been widely viewed as a relatively moderate intervention. Nevertheless, it directly targets a segment of the market that has experienced a decade of price stagnation alongside rising tax burdens.
However, the Budget has also been criticised for missed opportunities. Industry commentators have highlighted the absence of stamp duty reform as a key shortcoming. Stamp duty continues to restrict market liquidity and discourage home moves, and its omission means the affordability pressures faced by first-time buyers remain largely unaddressed. Furthermore, increases in tax rates on landlords’ rental income may exacerbate imbalances in the private rental sector. Under existing tax and regulatory pressures, some landlords may choose to exit the market, reducing supply and potentially pushing rents higher. This risk is compounded by forecasts from research institutions indicating a decline in net housing additions by 2027.
Outlook: Supply Constraints Remain the Core Challenge
With the Autumn Budget now in place, the market is expected to enter a period of greater policy stability over the coming year. Increased certainty is likely to encourage a gradual recovery in transaction activity. Research forecasts suggest that Prime Central London house prices will fall by 5% in 2025 compared with 2024, before recovering by 1% in 2026. Rental growth is expected to remain resilient, with rents forecast to rise by 2.0% in 2025 and 3.0% in 2026, delivering cumulative growth of 18.7% between 2025 and 2029.
On the demand side, younger buyers benefiting from intergenerational wealth transfers, together with sustained demand from international students and graduates, are expected to remain key sources of support. As policy uncertainty recedes, previously hesitant owner-occupiers and investors may also return to the market, helping to lift transaction volumes. From an investment perspective, standing assets are likely to remain the preferred choice in the short term, while the steady pipeline of new developments reflects continued long-term confidence in the multifamily and rental housing sectors.
Nevertheless, the recovery faces fundamental structural challenges. The government’s target to deliver 1.5 million new homes will require more targeted policy support, including improvements to planning efficiency, enhanced development viability, and measures to stabilise demand for new housing. If supply shortages are not effectively addressed, they will continue to constrain the long-term health of the market. In addition, the pace at which overseas buyers return to the prime market, changes in rental supply, and the effective transmission of lower interest rates will all be critical factors shaping future market performance.
Lansha’s Summary
Overall, the UK residential market in 2025 has revealed opportunities amid adjustment. The policy certainty delivered by the Autumn Budget has injected renewed momentum into the market. While challenges such as supply-demand imbalances and incomplete policy reform remain, improving investor confidence and the gradual release of pent-up demand suggest that the UK residential market may move steadily towards a more balanced and sustainable phase of development under a more stable policy environment.
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