England is facing a massive population boom, stretching housing demand even further.
Development consultancy Msrrons claims the number of households is projected to rise by 17% to 27.6m by 2040.
It warns that there’s a growing imbalance between supply and demand, with more than 1.3m households on local authority housing registers in 2025 and more than 320,600 social homes projected to be lost by 2040 if current trends continue.
The largest household growth is projected in the South West (20%), followed by the East Midlands, East of England, Greater London and the South East (18% each), while the North East is forecast to experience the slowest rise at 14%.
At the same time, the housing market faces a generational squeeze.
First-time buyer households (25-44) are set to grow by 14% to 16.1m, student-age and young professional households (19-24) by 9% to 710,800, and later living households (65+) by 36% to 9.4m.
Marrons says this is reshaping demand across all tenures and housing types.
Director Dan Usher comments: “We are heading towards a structural mismatch between the homes England needs and the homes being delivered. Household growth is accelerating across all age groups, but supply – particularly in social and affordable housing – is not keeping pace.
“The scale of projected losses to social housing, combined with record waiting lists, points to a system under sustained strain. Without intervention, affordability pressures will intensify and access to homeownership will become increasingly out of reach for many.
“The proposed changes to the National Planning Policy Framework, particularly policy HO7, place greater weight on delivering homes that meet evidenced need. This makes robust, up-to-date data more important than ever in supporting planning applications and unlocking sites.
“The challenge isn’t just how many homes are built but whether they reflect the way people actually live – and will live – in the years ahead. Without a step change in delivery, we risk locking in a housing crisis that will become far more difficult and costly to resolve.”
The firm’s updated study – Housing 2040: Phase II – provides a region-by-region snapshot of England’s projected housing needs.
As upwards pressure grows on borrowing costs, there are questions over whether the Bank of England’s hawkish posture is sustainable.
Almost four weeks into the Middle East conflict, the Bank of England risks fighting its own inflation battle on the wrong front.
As oil and natural gas prices have surged, financial markets have bet central banks will need to raise rates to control inflation.
The Bank of England is expected to increase rates twice this year, which is a notable shift from the position at the end of February, when two cuts were priced in by financial markets.
Its Monetary Policy Committee (MPC) surprised many by voting 9-0 to hold rates last week (with no dissenting votes to cut) and said it “stands ready to act” on inflation, which was widely interpreted to mean rate hikes were on the table.
The Bank may be scarred by the memories of double-digit inflation in 2022 and 2023, when it was arguably too slow to act.
However, underlying economic conditions are different today, which means raising rates could be a misstep.
“The Bank almost seems like they’re trying to fight the last war as opposed to this one,” said Pepperstone analyst Michael Brown, speaking on a Knight Frank podcast.
“However, almost every economic variable is in a very different, if not the exact opposite, place now compared to where it was in 2022.”
The UK economy is more susceptible to damage from rate hikes due to higher existing rates, a weaker labour market, lower GDP growth and a more punitive tax landscape than four years ago, says Brown.
Signs of De-escalation
US President Donald Trump announced this week that talks were taking place between the US and Iran.
Irrespective of the competing claims about how true this was, the statement itself was significant as the first sign of de-escalation from Trump, said Michael.
On the podcast, we also discussed how long the inflationary effects from the conflict could last, even if it ended tomorrow, the reasons the UK is more exposed than its G7 counterparts to higher borrowing costs, and whether the current reaction on financial markets could alter the thinking of potential Labour leadership challengers after the May local elections.
Rising swap rates have pushed fixed-rate mortgages higher in recent weeks, meaning most loans are currently priced above 4.3%, which is similar to the early weeks of 2025.
The two-year swap rate has climbed above the five-year rate in recent weeks, denoting the growing expectation of near-term upwards pressure on rates and the belief that any pressure will subsequently be downwards.
Alongside the negative impact on sentiment from the conflict, higher borrowing costs will put downwards pressure on UK housing transactions and prices in the short-term.
Bank of England figures show that mortgage approvals were 10% below the five-year average in January and transactions were 5% down, said HMRC.
Buyer Hesitation
Demand had been recovering following the November Budget, which caused hesitation among buyers due to the prolonged speculation over possible tax rises.
Meanwhile, UK house prices rose around 1% in the year to February, according to Halifax and Nationwide.
Growth was slightly down from the final months of last year as supply recovered from the Budget more quickly than demand.
Data in coming months will undoubtedly show a higher level of circumspection among buyers and sellers due to the Middle East conflict, which will also feed into the MPC’s thinking when it meets next on 30 April.
Another hold must be the most likely option next month.
Whether that is still the most probable outcome closer to the time or whether we see some MPC members vote for a cut depends on how de-escalatory Donald Trump’s latest social media post proves to be.
As Brown euphemistically states on the podcast, the conflict still has “a wide distribution of outcomes”.
UK housing costs hit a record high in 2025, reaching £226 billion, according to Savills.
The analysis of private and social rents, and owner occupier mortgages reveals that housing costs have grown by £8 billion over the past year (+3.6), and by a significant £66 billion over the past five years.
This is the equivalent of a +41% rise.
But total growth has slowed substantially from +£22bn in 2023 and +£19bn in 2024.
“The pace of growth in the nation’s housing costs has slowed substantially compared with 2023 and 2024,” says Lucian Cook, head of residential research Savills.
“In 2025, the burden of higher mortgage costs has been felt mainly by households coming off longer‑term fixed‑rate deals. At the same time, we’ve seen a return to much more normal levels of rental growth.
“In a market where homeowners are fixing their mortgages for longer, the impact of higher interest rates on housing costs – and on households’ ability to spend elsewhere in the economy – tends to have a much longer tail.
“Until recently, 2026 looked set to offer some respite, but that is now less certain given the prospect of another wave of inflation, which mortgage markets are typically quick to price in.”
Increases for mortgage homeowners vs renters
2025 total UK housing bill (£m)
1 year change (£m)
5 year change (£m)
Mortgage Interest
53,694
+4,475
+26,717
Regular Mortgage Repayments
60,660
+369
+14,465
Total Owner Occupier Costs
114,354
+4,844
+41,182
Private Rent
81,106
+1,937
+17,276
Social Rent
30,872
+1,113
+7,583
Total Renters
111,978
+3,050
+24,859
All Households
226,332
+7,894
+66,041
Source: Savills Research
In total, the bill for 8.8 million mortgaged owner occupiers in the UK reached £114 billion in 2025. This means that the average mortgaged homeowner is now paying £13,000 a year.
An increase in costs had primarily been driven by a sharp increase in mortgage interest payments, which have increased by 9% over the past year (from £49 billion to £54 billion in 2025).
But while mortgage interest alone has doubled over the past five years, regular capital repayments have risen at a more modest rate. This means that overall housing costs for mortgaged owner occupiers has risen by a lower, if still substantial, +56%.
In comparison, total costs for renters reached £112 billion in 2025, of which £81bn was paid to private sector landlords.
This means that the annual bill for the average household renting in the private sector has reached £15,000, reflecting a +27% increase in the total amount paid by private renters over the past five years.
Londoners incur a quarter of all housing costs
London has recorded the smallest percentage increase (36%) in housing costs over the past five years, while Northern Ireland has seen the largest rise, at 55%, according to Savills.
Despite this , the total cost of housing in London remains vast — broadly equivalent to the combined total across Scotland, North East England, North West England and Yorkshire and the Humber.
In fact, Londoners account for just under a third of the UK’s entire private rental bill.
March 2026 marks 10 years since the ‘second home’ stamp duty surcharge reshaped the economics of investing in residential property.
Introduced on 1 April 2016 for additional property purchases in England and Scotland, it marked the start of a shift between the tax treatment of owner-occupiers and investors.
Whilst it was initially set at an extra 3% on top of existing stamp duty rates in England, the surcharge was later increased to 5% in October 2024.
There is a similar 5% surcharge in Wales, while in Scotland the equivalent rate is now 8%.
To mark the anniversary, lettings agency Hamptons has undertaken a detailed analysis.
What changed – and why it mattered
\The surcharge dramatically increased the cost of purchasing an investment property.
Today, a £350,000 buy-to-let in England attracts a £25,000 stamp duty bill for an investor, compared with £7,500 for a mover and £2,500 for a first-time buyer.
By design, the policy tilted the market away from landlords.
But despite accounting for a smaller share of all transactions, by the 2024/25 tax year, surcharge payers accounted for 48% of all residential stamp duty revenue.
A decade on: 2.2 million ‘missing’ rental homes
These higher taxes, alongside other regulatory and demographic changes, had a profound effect on the size of the private rented sector.
Hamptons’ analysis suggests that had the private rented sector continued to grow at pre-2016 rates, there would be an additional 2.2 million households renting privately across Great Britain.
Instead, the number of rented households has effectively plateaued.
Despite demand rising with population growth, only around 5.2 million households rent privately today, compared with the 7.4 million that might have been expected had pre-surcharge trends continued.
Proportionally, this means 18.0% of households now rent – far from the 25.6% that would have mirrored the 1960s-style levels implied by earlier growth rates (chart 1).
The surcharge achieved its core objective: fewer purchases by investors.
But fewer landlord purchases, combined with some investors choosing to sell, have resulted in 25.4% fewer homes available to rent in February 2026 than in February 2016.
Investor activity falls as taxes rise
In the 12 months before the 3% stamp duty surcharge was initially introduced in England and Scotland on 1 April 2016, investors rushed to beat the deadline, with 16.5% of homes bought by landlords, above the previous five-year average of 14.5%.
However, in the decade since the surcharge was introduced, the average share of purchases made by landlords has fallen to 11.8%, reaching a low of 10.8% so far in 2026, following the 2024 surcharge increase from 3% to 5%.
The share of purchases bought by landlords has also fallen after subsequent stamp duty surcharge hikes across England, Scotland and Wales.
This decline in investor appetite has had several knock-on effects – not only for tenants and rental affordability, but also for housebuilding investors, who have traditionally helped de‑risk development schemes by buying off‑plan.
For long-term tenants and those unable or unwilling to buy, the surcharge has been less favourable. Rents across Great Britain have risen 44.1% over the last decade, outpacing CPI inflation, which rose at 39.9% over the same period.
Rents have risen by an average of 4.0% a year since the surcharge was introduced, up from 3.0% during the five preceding years.
This suggests the surcharge has added around 1% to annual rental growth over the last decade – equivalent to an additional £70 per month.
First-time buyers are the main beneficiaries – but not all have gained
First-time buyers have been the main beneficiaries of the second home stamp duty surcharge.
They now make up a record share of purchasers and are significantly less likely to find themselves competing with a landlord.
Share of offers made by first-time buyers where an investor is also bidding
12 months prior to the surcharge
2026
Change
London
38%
21%
-17%
South East
28%
15%
-13%
South West
22%
10%
-12%
Eastern
29%
18%
-11%
East Midlands
26%
22%
-4%
West Midlands
22%
22%
0%
North East
17%
17%
0%
North West
18%
24%
6%
Yorkshire & Humber
23%
26%
3%
Scotland
15%
18%
3%
Wales
9%
13%
4%
GB
26%
19%
-7%
Source: Hamptons
In the 12 months before the surcharge was introduced, more than a quarter (26%) of first-time buyers faced competition from an investor when submitting an offer (table 2).
Today, that figure has fallen to less than a fifth (19%), reflecting both fewer investor purchases and the rising first-time buyer demand.
This reduction in competition has been most pronounced across the South of England, particularly in London and the South East.
But in more affordable regions – the North West, Yorkshire & Humber, Scotland and Wales – competition from landlords has increased as investors have gravitated towards higher‑yield, lower‑cost markets.
This is also reflected in bidding behaviour.
In the 12 months running up to the surcharge’s introduction, the average investor offer was 0.8% below the average first-time buyer offer.
Today, higher tax bills mean the average investor bid is 2.0% below that of a first-time buyer, as investors struggle to make deals stack up.
Around three-quarters of the “missing” rented homes – roughly 1.4 million – are now lived in by owner-occupiers, broadly matching the government’s figures for growth in homeownership over the same period.
However, the surcharge has also likely suppressed housebuilding. The remaining 25% of ‘lost’ homes (around 800,000 properties) have not been built.
These are new units that might previously have been purchased by investors, often one to two years off-plan, which significantly helps with the developers’ cash flow.
