The UK housing market showed signs of recovery in 2024, although it remains a constant source of discussion, speculation, and planning for prospective buyers, sellers, and investors alike.  

As we look ahead to 2025, several factors are expected to shape the property market. From mortgage rates and house price trends to the impact of economic policies. Here’s what we could see in the year ahead. 

Mortgage Rates: Steady Decline Imminent? 

One of the most significant factors influencing the UK housing market in 2025 will be the cost of borrowing. Mortgage rates, which soared through 2022 and much of 2023 due to successive Bank of England base rate hikes, are expected to enter a period of steady decline.  

The Bank of England’s aggressive rate rises were aimed at curbing high inflation, which peaked in 2022. However, with inflation now showing signs of slowing and wage growth catching up, analysts expect the Bank to pivot towards rate cuts. 

Borrowers were met with the welcome news of a decrease in the UK base rate to 4.75% by the end of November, although this was not immediately met by a correlating decline in mortgage rates, implying a still-cautious approach from lenders in the current climate.  

The expectation is that further reductions are expected throughout 2025, although not to the super-low levels we are familiar with pre-2022.  

As the base rate drops, mortgage lenders are likely to follow suit, offering borrowers more competitive fixed-rate and variable-rate deals. This will provide much-needed relief to households grappling with expensive borrowing costs, particularly those with fixed-rate mortgage deals set to expire. 

Additionally:  

  • Homeowners who secured high-rate deals during the 2023 peak will have the opportunity to refinance under more favourable terms. 
  • First-time buyers may benefit from better deals for their new home.  
  • Existing homeowners may be more confident in looking to move. 
  • Property investors may seek a return to the market.  

Overall, while mortgage rates are unlikely to return to the ultra-low levels seen in the post-pandemic years, a gradual decline in borrowing costs throughout 2025 could mark a positive turning point for buyers, sellers, and the broader UK housing market. 

House Prices: Modest Growth Expected 

The housing market experienced a cooling-off period in recent years due to the aforementioned high inflation and interest rates. We do however expect to see modest house price growth in 2025. There was a slight uptick in house prices in 2024, with an annual rise of 2.9%, and the average UK house price standing at £292,000. The North of England currently shows the most significant price growth, with the North-West expected to see an increase of 29.4% over the next four years.  

A Competitive Buyer’s Market 

The anticipated easing of economic pressures could lead to a competitive housing market in 2025. With more affordable mortgages and a stabilising economy, first-time buyers, movers, and investors may seize opportunities to purchase property.  

This surge in demand could be met with a slightly improved supply, as homeowners feel more confident putting their properties on the market. 

Affordability challenges, however, will persist in some areas, especially for first-time buyers in major cities.  

The gap between wages and house prices remains a barrier for many, meaning government incentives or support schemes may still be needed to facilitate homeownership. 

Government Policies Affecting Buyer Morale 

The new Labour government’s stance on housing will be a crucial factor in shaping the market. Initiatives such as the £5Bn aimed at increasing housing supply, announced in Rachel Reeves’ Autumn Budget, look to address the demand for UK housing, and schemes such as Help-to-Buy can further encourage first-time-buyers to take their first step on the property ladder. Alternatively, other government initiatives could affect buyer interest at different points of the year. 

An example is the upcoming change to Stamp Duty Land Tax (SDLT) thresholds. From April 2025, the threshold at which stamp duty kicks in for first-time buyers will revert to £300,000, down from the current temporary level of £425,000 introduced in 2022 to stimulate the property market.  

This rollback could add significant costs for buyers purchasing homes priced above the new £300,000 limit, particularly in high-demand areas like London and the South East, where property prices often exceed this threshold. 

This reduction could prompt a short-term flurry of activity in early 2025, as buyers rush to complete purchases before the change takes effect. However, beyond this initial surge, the lowered threshold may dampen affordability for some first-time buyers, placing added pressure on a demographic already contending with rising property prices and limited supply.  

For sellers, this shift could also impact demand in certain price brackets, particularly for homes priced just above the £300,000 threshold, as buyers factor in the additional tax burden. 

Impact of Economic Conditions 

The broader economic landscape in 2025 will also influence the housing market’s performance. A cooling of inflation, combined with wage growth and improvements in consumer confidence, could create a more favourable environment for transactions.  

However, the cost-of-living crisis, though expected to ease somewhat, may still weigh on households, particularly those at the lower end of the income scale. This could lead to regional disparities, with more affordable areas seeing higher levels of demand compared to pricier markets. 

The Rental Market 

The rental market is expected to remain under pressure in 2025, with demand for rental properties likely to stay high. Rising interest rates in previous years have made buy-to-let investments less attractive for landlords, limiting the supply of rental properties.  

Alongside this, the increase in stamp duty on second homes due to take effect under Labour could also deter potential landlords from entering the buy-to-let space.  

Alternatively, the increased demand from those unable to step onto the property ladder could yield higher rental returns in many parts of the UK.  

A Balanced Outlook 

While uncertainties remain, the UK housing market in 2025 is likely to benefit from improved economic conditions and stabilised borrowing costs. Modest price growth, increased market activity, and targeted government interventions could create a more balanced and accessible market for buyers and sellers alike. 

Whether you’re planning to buy, sell, or invest, staying informed and prepared will be essential. 

OneDome will be on hand to help you no matter your property goals. We are devoted to making your buying and selling journey faster, simpler and cheaper.