Publication

UK Housing Market Update - January 2025

House prices grew strongly in December and market activity indicates a promising outlook heading into 2025

House prices rose by 0.7% in December, according to Nationwide. Total growth over 2024 was 4.7%, marking the third strongest calendar year of the past decade behind 2020 and 2021. Despite this recent strong growth, average values in nominal terms as still -1.6% lower than the pre-Mini Budget peak. We expect price growth to continue this year, supported by gradually falling interest rates.

House price growth was greater in the north of the country. In the North East, house prices grew 5.9% in 2024, and by 5.5% in the North West. East Anglia had the weakest price growth of 0.5%, followed by London at 2.0%.

Market activity also had a strong end to the year. Mortgage approvals were down in November compared to October but remained in line with the 2018-19 average for the second consecutive month. Completed transactions hit their highest level in October since November 2022. Sales agreed remain at around 11% above the pre-pandemic average, according to TwentyCI.

Activity is likely to remain strong until March. We expect buyers will seek to beat the reversion to higher stamp duty rates in April by bringing purchases forward, creating a peak in sales during Q1.

Longer term, the market will continue to be sensitive to interest rates. Our forecast for 4% price growth in 2025 relies on mortgage rates falling in line with expectations. Mortgage interest rates and underlying swap rates have remained relatively stable since the autumn. But some lenders started the year by cutting their interest rates to compete for buyers more aggressively.

Further substantive rate cuts rely on the Bank of England cutting the base rate. The Monetary Policy Committee’s December meeting indicated a steady approach to easing the base rate in 2025. Oxford Economics forecast a continuation of a ‘cut-hold’ pattern with the next cut in February, the first of four cuts in 2025. These rely on inflation steadying, remaining close to the 2% target, and the MPC placing more emphasis on economic growth. That inflation was higher than expected in both October and November will not have helped, although the medium-term outlook for inflation remains in line with the target. 

Land Registry data shows that parts of Scotland are seeing the highest house price growth, in particular West Dunbartonshire (8.7%) and South Ayrshire (8.3%). This annual growth has slowed to single digits, however. The greatest price falls were in Dover and South Holland, both down -6.4%.

Annual rental growth across the UK in November was 4.1% according to Zoopla, an increase from 3.6% in October. This acceleration comes despite reduced tenant demand, according to the RICS survey, indicating that even reduced demand is continuing to exceed available stock across the UK. 

Rental growth is accelerating in most regions, except the East Midlands. This included London, the most expensive rental market, where affordability had caused rental growth to slow. But a lack of stock on the market appears to be driving renewed competition between prospective tenants. A real increase in stock is unlikely to materialise, with many landlords pessimistic about the future legislative environment, so further rental growth is likely.