House prices rose by just 0.1% in October, taking annual growth to 2.4%, according to Nationwide. This suggests growth will be slightly ahead of our forecast for the end of 2024. Looking ahead, we are forecasting 4% house price growth in 2025 for the UK, with lower growth of 3% in London due to affordability pressures and higher growth in the Midlands and North. Our full forecasts can be read here.

Slower price growth ahead of Labour’s first budget since 2010 was reflected in market activity. Market activity in 2024 has been below the 2017-19 monthly average, but is getting closer to pre-pandemic levels. Transactions have been around -7% below 2017-19 levels for the past three months compared to -12% below in the first half of 2024. Mortgage approvals are 99% of 2017-19 levels which alongside continuing positive buyer sentiment from the RICS survey indicate increasing future activity. 

Mortgage rates have risen slightly over the last couple weeks as lenders repriced around the Budget, but this is a short-term trend. The average 2- year fix (75% LTV) now sits at 4.6%. Inflationary pressures, including wage growth and unemployment, are easing, and prompted a further cut to the base rate in November, likely the last of the year. The base rate now sits at 4.75%.

Labour’s Budget is likely to affect some areas of the market more than others. The greatest short-term impact will be from the reinstatement of stamp duty at lower thresholds from April 2025, which is likely to bring some purchases forward into Q1 2025. The unexpected exemption of residential property from Capital Gains Tax has been tempered by an increase in stamp duty on additional properties from 3% to 5%, which may reduce supply into the private rented sector. Prime markets may see implications deriving from changes to tax treatment of ‘non-doms’ and changes to inheritance tax – see our blog.

Economists generally agree that the Budget will add to inflation, which could mean cuts are slower than the pre-budget forecasts. This would translate into slower falls in mortgage rates and less capacity for house price growth.

Land Registry data to July shows an increasingly pronounced North-South split. The largest price falls were in Kensington and Chelsea (-7.6%) and along the south coast, including Dover (-6.8%) and Thanet (-6.6%). Prices increased most in Scotland, which is continuing to see the most widespread price growth. Inverclyde and East Dunbartonshire saw the highest price growth of 15.5% and 8.4% respectively.

Annual rental growth across the UK in September was 4.3% according to Zoopla, a further deceleration from August’s annual growth figure of 4.6%. This is despite rental stock falling sharply, according to the RICS survey. This suggests rents are reaching an affordability ceiling across large parts of the country. This is most acute in London (1.7% annual growth) where rental values are highest nationally. More affordable markets where there is scope for further rental growth are seeing higher annual rental growth, such as the North East (8.1%) and Scotland (6.4%).

Supply remains a critical factor for rental growth in many markets. The changes to stamp duty in the recent budget are unlikely to encourage more landlords to enter the market, so this pressure seems set to remain.