How Inflation & interest rates are affecting the UK housing market

If you are considering buying a property in London from India, it’s important you keep yourself updated with the United Kingdom’s dynamic economic factors. These include fluctuating inflation and interest rates — as they primarily reshape the UK real estate landscape, especially in London.

Within this blog, we cover how inflation shifts and interest rate cuts play a major role in mortgage costs and investment opportunities within the capital.

Between 2021 and 2022, the UK underwent a major inflationary wave as inflation peaked at 11.1%* in October 2022 - the highest in 41 years. In recent years, however, the numbers have dropped significantly, reaching 2.0%* in May 2024 (the Bank of England’s target).

Fluctuating interest rates

In order to get inflation under control, the Bank of England hiked interest rates carefully and steadily from 2021. This hike resulted in reduced property demand and higher mortgage rates. However, since August 2024, interest rates have been reducing gradually, touching 4.25%* in May 2025, with further rate cuts expected.

These numbers are already appealing to Indian investors as fixed rate mortgages are getting competitive - this translates to attractive options for long-terms investors. An Indian cash property buyer gains even greater leverage in negotiation due to market uncertainty.

UK housing market trends

Despite certain hurdles, the UK housing market continues to show resilience:

• House price growth in London has slowed, but it has definitely not reversed
• Rental demand continues to record high numbers, especially in urban London zones and student-centric areas, due to consistent undersupply
• New homes for sale in the UK are attracting solid interest from savvy Indian buyers thanks to energy efficiency, warranty coverage and seamless transactions

Safe to bet in London real estate?

It’s 2025 and London continues to stand as a preferred city for Indian families, professionals and HNWIs
buying homes in the UK. this capital city offers excellent advantages, including world-class education, strong rental returns, healthcare facilities, solid property market and global connectivity.

Affordability & timing

Higher interest rates typically impact mortgage affordability, but they also cool down competition — which gives international buyers more room to negotiate. Today’s environment is marked by falling interest rates, cooling inflation, slow price growth and solid rental yields — all these factors lead to a balanced window for Indian investors to step in and secure UK assets with long-term growth potential.

The ideal investment strategy

It’s a known fact that timing the perfect opportunity in a competitive real estate landscape like London’s is always risky. Instead of waiting for the perfect time, we suggest you focus on buying well, in the best location and with a clear purpose — whether you are investing in property for your children, setting up retirement income or capital preservation.

The UK continues to stand as one of the world’s most transparent and stable property markets. With the right guidance like that from Benham and Reeves India, we are confident you will benefit from excellent, lucrative opportunities in London hotspots.

Benham and Reeves India

With over 65 years of London real estate expertise and dedicated teams in Mumbai & Delhi, India, Benham and Reeves offers unparalleled end-to-end support to its clientele.

This includes assistance with property sourcing in top UK zones, legal and mortgage guidance, tailored furnishing and letting services and property management solutions.

If you are ready to explore London’s vibrant, bustling property market, connect with the Benham and Reeves India team today.