Mayhews 2025 Property Market Forecast

Nothing seems to stop the relentless march of property values, even with a stamp duty increase looming. It’s been a bumpy ride for the housing market in recent years, after Liz Truss’s disastrous mini budget of September 2022 created a surge in borrowing costs that have cost many households dearly.

But despite elevated mortgage and rent costs, the market last year has turned out to be “surprisingly resilient”, according to Nationwide building society. Experts had expected house prices to stay flat or fall, but average prices are expected to have risen by more than 3% in 2024, after falling by 1.4% in 2023.

Looking ahead to the new year, house prices are predicted to grow at a similar or slightly faster rate in 2025 – before accelerating to as much as 5.5% in 2026 – while record rent increases are likely to return to more normal levels, lenders and estate agents predict.

The for-sale market should get a boost as interest rates come down – albeit at a slower rate than was previously expected as inflation proves sticky – and people’s incomes could rise faster than house prices.

The average price of a UK home now nears £300,000 according to the lender Halifax, stretching affordability for many potential buyers. First-time buyers in particular have struggled to save up for a deposit after record rates of rental growth in recent years.

Forecasts from Nationwide, Halifax, Jones Lang LaSalle, Rightmove, Hometrack and Capital Economics range from 2% to 4% price growth in 2025. Activity in the housing market has been underpinned by strong wage growth – running at 5.2% in October 2024 – and slightly lower mortgage rates. The number of mortgages approved for house purchase each month rose above pre-pandemic levels towards the end of the year.

The Bank of England has cut interest rates twice this year, in August and November, to 4.75%. However, since Rachel Reeves’s autumn budget, economists and traders have scaled back their expectations for further rate cuts because the chancellor’s £40bn of tax rises are forecast to push inflation slightly higher than it would have otherwise been. That – coupled with sticky services inflation at 5% – limits the central bank’s scope to reduce borrowing costs.

Financial markets are expecting another two to three rate cuts in 2025, which would take Bank rate from 4.75% to potentially 4% by the end of the year. “Activity in the UK housing market is going to be holding up quite well, given the environment,” said Robert Gardner, Nationwide’s chief economist. “But we’ve got to be realistic about how much more it’s going to strengthen given those affordability barriers. They are likely to improve gradually in the period ahead.”

He added: “Lower interest rates will help, and income growth outpacing house price growth will also help. But it’s going to take time for that process to have much of an effect.”

Mortgage rates have edged higher in recent months but an increasing number of lenders have been able to make some reductions to fixed deal Mortgages. The average two-year fixed mortgage costs 5.46%, while the average five-year fix is at 5.23%.

Fixed mortgage deals below 4% that were on offer between late July and September have all but disappeared.

Sub-4% deals are important because it is a “psychological threshold”, said Tom Bill, head of UK residential research at the upmarket estate agent Knight Frank.

“We’re firmly back above 4% for anything that’s a two – or five-year fix, You have a certain amount of people that need to move because of schools and jobs. But when mortgages dip below 4%, you start to see more discretionary demand kick in, and that will be slower to come back.”

Lenders are likely to cut their mortgage rates in January to drum up business and “you may see the odd sub-4% mortgage even in the first six months, but I’m not sure you’re going to see that widespread choice of three-something-per-cent mortgages that we had late summer.” In addition, changes to stamp duty from 1 April are likely to generate volatility, property experts said, as buyers rush to complete before that date to avoid paying more as a result of a lower stamp duty threshold, and an extra band added into the stamp duty thresholds for second home purchases. So January to March should be busy, with a lull from April.

For tenants, 2025 should see private rental growth normalise, with average rent increases expected to fall sharply to 4% or lower. They rose by 9.1% across the UK in the 12 months to November, according to the ONS, and by 9.3% in England, a record high.

There had been an uptick in the number of available rental properties, and pointed to mounting financial pressure on tenants. “With average rents now close to 40% of incomes, many tenants are struggling to absorb further cost increases, despite rising wages. This has resulted in fewer people entering the market and more renters negotiating lower prices.”

However, some landlords may sell up, faced with the renters’ rights bill, reducing the number of properties on the market.

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