Housing supply at an 11-year high as inflation pressures ease

The UK's annual rate of inflation fell to 3% in January, the lowest level since March 2025. That's in line with economists' forecasts gathered by Bloomberg and will no doubt boost bets on an interest rate cut next month.

The data follows jobs figures published yesterday showing the unemployment rate had risen to 5.2% in the final quarter of 2025. Excluding the pandemic, that's the highest rate in more than a decade, and causes a big headache for a government which promised a relentless focus on "growth, growth, growth."

Leading fixed-rate mortgages have been steady for the past four weeks, though there has been considerable movement in the middle of the market. These figures should pave the way for more incremental rate cuts in the weeks ahead, which will support sentiment as we move into spring.

Surge in sales

Asking prices held steady in the four weeks to 7 February, Rightmove reported on Monday, suggesting the New Year post-budget relief rally may be losing momentum. Prices are being kept in check by high levels of supply: the number of homes for sale is now at its highest level for 11 years.

Annual comparisons are of limited use due to the surge in sales ahead of changes to stamp duty in April 2025, but the number of agreed sales rose 9% compared to the same period in 2024.

Asking prices rose by a record 2.8% in the four weeks to 10 January. That pushed the metric to its best start to the year since 2020.

Cheaper rates

The tax and regulatory squeeze on residential landlords has prompted large numbers to reduce their portfolios or exit the sector entirely, but several indicators now suggest the process has run its course.

The first signs arrived in January, when UK Finance data showed that lenders granted 59,467 loans to residential landlords in the third quarter of 2025, up nearly a quarter on the same period last year. Much of that activity was landlords locking in cheaper rates – remortgaging surged by nearly a third – but purchasing activity also climbed 4% to 16,885.

New figures from TwentyCi covered by the Times show that 10.4% of all homes listed for sale had previously been let, which the firm said was “much closer to the long-term expected average”. In January 2024, 17.4% of homes put up for sale were former rentals.

Investor appetite

Investors spent nearly £880 million on UK purpose-built student accommodation (PBSA) in the final quarter of 2025, taking annual investment to £4.3 billion, up 10% year on year and just shy of the long-run 10-year average of £4.5 billion. Established investors remained the backbone of the market in 2025, but fresh capital seeking best-in-class or first-generation assets with cap-ex potential has deepened the liquidity pool.

A total of 79 deals were completed in 2025, a 20% increase on the previous year. However, a higher volume of transactions should not be mistaken for an ‘easy’ investment market, Katie O'Neill writes. Capital markets intelligence points to misalignments between vendor and purchaser pricing expectations, which in some cases have prolonged deal times. Investor appetite was strongest for first-generation standing stock, particularly where there is potential to deliver value-add returns. Yet the backdrop of a second consecutive weaker leasing cycle for 2025/26, a 10-year gilt yield of around 4.5% and share price declines among publicly listed sector participants – such as Unite Group plc falling roughly 30% in H2 2025 – have put returns into perspective for investors.

Despite the operational intensity of PBSA assets, market maturity and a breadth of management platforms enable institutional entry and de-risked operations. The private direct let PBSA market remains highly concentrated, with around 40% of stock controlled by just nine investors, while the remainder is fragmented and fiercely competitive for scale.

In 2026, we expect to see capital chasing expansion. This will be focused on 1) plug-and-play ability across platforms, 2) composition strength, with a preference for 100% Russell Group exposure and ‘manageable’ asset sizes of 400-500 beds, 3) middle market product offering, appealing to both domestic and international students, and 4) risk-adjusted returns: defensive entry points relative to the amount of scale desired, and active asset management to unlock rental reversion. See Katie's note for more.

In other news...

Sadiq Khan ‘blocks reboot of London housebuilding’ (Times).