The UK housing market is poised for a dynamic year in 2025, with Rightmove, a leading property platform, forecasting a 4% rise in average asking prices and approximately 1.15 million home sales. This projection suggests a significant shift in market dynamics, influenced by anticipated mortgage rate adjustments and evolving buyer behaviors.
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Mortgage Rate Forecasts and Their Impact on Affordability
Rightmove’s expert panel anticipates that both five-year and two-year fixed mortgage rates will settle around 4% by the end of 2024. This projected decline from the current rates of 4.83% and 5.08%, respectively, is expected to be driven by several base rate reductions by the Bank of England. These lower rates could significantly improve affordability for prospective homebuyers and bolster consumer confidence in the housing market.
However, the future trajectory of mortgage rates remains subject to various economic and geopolitical factors, including inflation and global tensions. While improvements are expected, a complete return to the historically low pre-cost-of-living-crisis levels is unlikely. Matt Smith, Rightmove’s mortgage expert, highlights the mixed outlook for the market, noting that while some homeowners will benefit from lower mortgage costs in 2025, others, particularly those rolling off low five-year fixed rates from 2020, will likely face increased expenses.
Remortgaging Takes Center Stage
As a substantial number of borrowers face mortgage rate resets in 2025, remortgaging is expected to become a focal point for lenders. Homeowners who secured two-year fixed rates in the post-mini-budget period of 2023 are likely to see their costs decrease, as current two-year fixed remortgage rates average around 5.19%. The narrowing gap between two-year and five-year fixed rates is also anticipated to make shorter-term mortgage options increasingly appealing to buyers in 2025.
House Price Predictions: A Moderate Recovery
Rightmove’s 4% average asking price increase prediction for new homes by the end of 2025 represents the most substantial projected growth since 2021, though significantly lower than the surges observed during the pandemic.
This forecast also points towards a potential price recovery in London, a market that has lagged behind the rest of the country in recent years. Despite a 12% increase in average asking prices over the past five years, London still trails the national average of 21%. Experts anticipate a resurgence in London’s property market, fueled by the return of full-time office work and renewed interest from both domestic and international buyers. Rightmove projects that London’s price growth will at least match, if not slightly exceed, the national average in 2025.
First-Time Buyers Remain a Driving Force
First-time buyers are expected to continue playing a crucial role in the housing market in 2025, despite upcoming changes to stamp duty. The lowering of the stamp duty threshold for first-time buyers from April 1st will result in increased costs for many. This change has already triggered a surge in activity among first-time buyers in higher-priced areas seeking to complete transactions before the new rates take effect.
However, the ample availability of homes priced under £300,000, particularly outside London and the South East, continues to provide first-time buyers with a competitive edge over second-time movers and investors. With first-time buyer enquiries already 13% higher than last year and further affordability improvements anticipated in 2025, this segment of the market is expected to remain robust.
Regional Variations and Stamp Duty Impact
Regions such as the North East and Yorkshire & The Humber, where 73% and 61% of properties respectively fall within the stamp duty-free threshold, are expected to experience a higher proportion of first-time buyer activity. The stamp duty changes are likely to create a flurry of transactions in the early part of 2025 as buyers aim to secure purchases before the deadline. Tim Bannister, a property expert at Rightmove, predicts a busy first quarter, with buyers and sellers potentially negotiating prices, especially for properties near the £300,000 mark, to offset the higher stamp duty costs.
A Year of Activity and Adjustment
While strong buyer demand persists, potential sellers will likely encounter increased competition due to a greater supply of homes. Consequently, price growth is expected to remain moderate. However, with 1.15 million transactions projected for 2025, the UK housing market is anticipated to remain active. The year will also be significant for remortgaging, as homeowners who secured fixed-rate mortgages during the low-interest period of 2020 face potentially higher rates as their deals expire. For example, a homeowner with a typical five-year fixed rate of 2.55% from 2020 could now face an average remortgage rate of 4.89%. Overall, 2025 promises to be a year of both activity and adjustment in the UK housing market.
