UK Property Market July 2025

The UK property market is moving — but not quite in the way many think.

Over the past year, average house prices have grown by around 3.9%. At first glance, that sounds positive. But here’s the catch: that figure doesn’t account for inflation, which is currently sitting at about 3.5%.

So what happens when we adjust for inflation?

Put simply, inflation is the rise in the cost of living. It means your money doesn’t stretch as far as it used to. So even if your house has gone up by 3.9%, if everything else (groceries, energy, materials, labour) is 3.5% more expensive, then in real terms, your profit is only 0.4%.

Think of it like this: if your home went up in value by £10,000 this year, but inflation also rose, that £10,000 won’t actually buy you the same amount of goods or services it would have 12 months ago. Your money has more zeros on it, but less real-world power. That’s what adjusting for inflation really means.

Now compare that to rents, which have gone up by more than 7%. That’s a gain that beats inflation, meaning rental income is actually growing in real-world value.

With borrowing costs still high (thanks to a 4.25% Bank of England base rate), fewer people are buying — and more are renting. That pushes up demand for good rental stock and strengthens the case for income-focused investments.

Bottom line? In today’s market, cash flow is king. Capital growth is steady at best, but rental yields are strong, inflation-beating, and driving most of the real returns.