House prices rose by 0.1% in January, according to Nationwide. This means that annual house price growth slowed to 4.1% at the end of the year, but 2024 still came in ahead of our forecasts despite mortgage rates weighing on affordability.

Transaction volumes also improved in 2024, with sales almost back in line with the pre-pandemic average by the end of the year. 1.1 million transactions completed in 2024, -8% below the 2017-19 average, but 8% above 2023. Market activity picked up in the second half of 2024, and peaked before the Budget in October. A further peak is expected in March, as buyers aim to complete before the Stamp Duty change. This will be supported by increasing numbers of sales agreed, according to early data from TwentyCI. 2025 got off to a stronger start than either of the previous two years, according to Zoopla, with high levels of both supply and demand.

January proved to be a rollercoaster for gilt yields, causing concern that mortgage rates may rise, but we’re back at the station now. In mid-January, gilt yields spiked to their highest level since the 2008 global financial crisis, sparking fears of Truss 2.0. Mortgage rates, however, remained relatively steady, and by the end of January gilt yields had eased to 4.5%, where they were at the beginning of the month, and there was little impact on the housing market. But it did highlight the continued vulnerability of the market to external shocks.

Mortgage rates are now more likely to move downwards again, following the Bank of England (BoE) cut of base rate to 4.5%. Although some inflationary pressures remain, there is mounting worry over the UK’s slow economy, which has encouraged the MPC to act to stimulate economic growth. This will allow lenders to cut mortgage rates, opening up more affordability in the housing market. Oxford Economics continue to forecast a further three cuts in 2025, bringing the base rate to 3.75% by the end of the year.

Another route to easing affordability and access to the housing market is the proposed relaxation of mortgage regulation. The Financial Conduct Authority has been encouraged to review rules to stimulate growth, including increasing the loan to income cap and relaxing stress testing. Critics, however, have warned that this could inflate house prices and leave more households at risk of repossession in the event that interest rates reach higher than expected levels.

Scotland continues to see the highest house price growth, according to price paid data. West Dunbartonshire, Inverclyde, and Moray had the highest growth of 8.7%, 8.0%, and 7.0% respectively, during the year to October. House price growth was more muted across most of the country, with over a third of local authorities seeing falls. Devon was the weakest area, with price falls in Torridge (-6.3%), North Devon (-4.7%), and Torbay (-4.3%).