As we close out 2024, the UK housing market continues its journey of recovery and growth. From rising house prices to steady mortgage rates, the market has shown resilience and adaptability in the face of recent economic challenges. Lets look at the landscape as we head into 2025.
Market Recovery: Positive Growth Returns
This year marked a pivotal turnaround for the UK housing market. Following a challenging period, house prices saw a 1.5% year-on-year increase by October 2024. This is a big shift from the -1.2% decline recorded a year prior. This growth has been driven by higher household incomes and reduced mortgage rates, creating favorable conditions for buyers and sellers alike.
Regionally, the picture is diverse. Northern Ireland led with an impressive 6.3% annual price increase, followed by the North West at 2.9%. However, affordability constraints in southern England have resulted in more modest growth, with areas like London seeing only a 1.1% rise.
Housing Affordability: A Mixed Bag
Affordability remains a critical factor shaping the market. Rising incomes which are up 15% over the past two years, has helped repair affordability for many buyers, particularly in the Midlands and Northern regions, where house prices are now fairly valued. Conversely, southern England continues to grapple with affordability challenges, where house prices appear overvalued by up to 30%.
Despite these challenges, first-time buyers (FTBs) have shown resilience, taking on slightly larger loans while adjusting less on property prices. This has allowed them to maintain a strong presence in the market, particularly in more affordable regions.
Mortgage Rates and Stamp Duty: Stability Ahead?
Mortgage rates for a 75% loan-to-value five-year fixed-rate loan currently average 4.1%. While rates have nudged higher following the Autumn Budget, they are expected to remain stable at around 4.25% through 2025. This stability, coupled with innovative affordability assessments by lenders, is likely to support continued demand.
Stamp duty, however, is set to pose new challenges. Changes effective from April 2025 will see higher rates applied to many homebuyers. With nearly 83% of movers in England and Northern Ireland set to pay more, this additional cost could act as a drag on house price inflation, particularly in the lower to mid-market price range.
2025 Outlook: A Year of Steady Growth
Looking ahead, 2025 is set to build on 2024’s recovery, with house prices projected to rise by 2.5% and housing transactions expected to grow by 5% to 1.15 million. Regional markets, where affordability is less of a barrier, are likely to see the best conditions for growth. First-time buyers will remain a cornerstone of market activity, supported by favorable lending conditions and rising incomes.
Final Thoughts
The UK housing market has proven its resilience, navigating through higher borrowing costs and adapting to shifting economic conditions. While regional disparities in growth and affordability persist, the overall outlook remains positive. As we move into 2025, steady mortgage rates, innovative lending practices, and improving incomes will likely sustain the momentum we’ve seen this year.
Stay tuned for further updates as we track these evolving trends into the new year.
Information gathered from personal knowledge, rightmove, zoopla and home.
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