The housing market is central to many peopleโs financial plans. Getting into it for the first time, moving up within it or cashing out, its movements affect your money.
It has seen ups and down in recent years, with the shock of bank interest rates heading above the historic low of 0.1% putting the biggest damper on activity since Covid.
But the housing market returned to growth in 2024, with more sales and higher house prices compared to 2023. The UKโs largest lender, Halifax, reported that the average cost of a home had risen to just under ยฃ300,000 after a 1.3% jump in November.
Despite a pandemic, a cost-of-living crisis and a mortgage market meltdown two years ago prices are now roughly up by more than 25% than they were roughly around five years ago.
What are the factors driving the market, and will they continue to drive growth in 2025?
Falling rates and rising prices
A fall in the Bank of England base rate supports falling rates for mortgages, and lower mortgage rates seem to have supported a return of sellers (and buyers) to the market with a healthy stock of homes for sale, which has supported sales volumes.
Mortgage rates for home buyers have fallen by 1% in the last year to a current average of 4.1%. While mortgage rates have drifted higher in the wake of the Autumn Budget, they are likely to remain at around 4.25% for a 75% loan-to-value 5-year fixed-rate loan.
More buyers, more sales and greater buyer confidence have fed into higher house price inflation across all regions and countries of the UK. The fastest price gains were in Northern Ireland and the Northwest region and the slowest across southern England, where, with prices already high, inflation remains below 1%, and some small pockets have seen actual falls.
Affordability
It looks as though the one thing holding prices down is being able to afford the mortgage repayments. People may be prepared to pay more for the home they want, but they can only borrow within the guidelines for affordability. Lenders will also test new borrowers to see if they can afford a โstressedโ rate, which is currently closer to an average of 8%. This has started to present a major affordability hurdle.
The surprising fact is that latest Office for Budget Responsibility (OBR) data shows household disposable incomes increased by 15% between 2022 Q2 and 2024 Q2.
House prices grew by just 1.5% over the same period, a trend that means housing is surprisingly becoming more affordable and allowing prices to creep up further.
The stamp duty cloud on the horizon
The current temporary stamp duty (or SDLT) thresholds expire in April, with the "nil rate" band for first-time buyers dropping from ยฃ425,000 to ยฃ300,000. Many home buyers will pay higher stamp duty land tax (SDLT) from April 2025 as the 2% band for movers returns and relief for first-time buyers is scaled back.
The current flurry of activity across the market may be due to buyers hurrying to complete to avoid the increased rates from April 2025.
Buyers faced with higher purchase costs will want this reflected in the purchase price. This will act as a drag on house price growth over 2025, especially in the lower to mid-market price range (ยฃ125,000 to ยฃ250,000), where SDLT will represent 2% of the purchase price.
So, what is the forecast?
- Falling interest rates could trigger growth in house prices
- We might see more activity in Q1 than normal as buyers rush to completeย
- The market could hit a bump after April as the new SDLT rates bite.ย
- Growth may be faster at the lower end of the market, where SDLT will not have so much impact.
Of course, we canโt predict the future, and unexpected events can derail the most sophisticated projections.
The one thing you can be sure about is that getting the appropriate mortgage will still be essential โ and the simplest way to help ensure that in 2025 will still be to call us at Continuum.
Average UK house price hits record ยฃ300,000 as demand remains undented
https://www.zoopla.co.uk/discover/property-news/house-price-index-november-2024
https://www.nationwidehousepriceindex.co.uk/reports/strong-end-to-the-year-for-uk-house-prices
https://myhomemoveconveyancing.co.uk/buyers/what-can-you-afford/stamp-duty-changes-2025
The information contained in this article is based on the opinion of Continuum and does not constitute financial advice or a recommendation to a particular mortgage product and you should seek independent financial advice before embarking on any course of action.
The Financial Conduct Authority does not regulate taxation advice and some aspects of Buy to Let mortgages.
Levels, bases and reliefs from taxation are subject to individual circumstances and may be subject to change
Your home or property may be repossessed if you do not keep up repayments on your mortgage
You may have to pay an Early Repayment Charge if you remortgage.
