House prices have once again defied expectations in 2024, as they did in 2023.
Higher mortgage rates and high inflation had many speculating at the start of the year that house prices would fall. Instead, they have risen - and substantially. The price of the typical home increased by around £10,000 in the year to October, according to the latest figures from the Office for National Statistics. The average home sold for around £292,000 in October - which is an increase of 3.4 per cent on the same time last year when the average property was selling for £282,000. The ONS figures run on a delay compared to other house price indexes, but are considered more accurate because they are based on completed sales. But other indexes also paint a similar picture.
Unlike other predictions, Rightmove tracks asking prices, rather than the price homes are agreed or sold for. Asking prices ended the year 1.4 per cent up this year, and Rightmove predicts that new seller asking prices will rise by 4 per cent next year. The average UK house price is now £298,083 compared to £283,615 a year ago, This pushed the annual growth rate up to +4.8%. See Halifax report here.
Based on Zoopla HPI the average house price in the UK is £267,500 as of November 2024 (published in December 2024). Property prices are now at +1.9% inflation compared to a year ago. In 2025, the average UK house price is set to rise by 2.5% by the end of the year.
Zoopla says: "The outlook for the housing market in 2025 will be dictated by the strength of the economy and labour market as well as the trajectory for mortgage rates, all set within the context of housing affordability. We believe mortgage rates are set to remain at current levels and buyers are likely to remain price-sensitive in the face of increased uncertainty over the economy and the impact of the Autumn Budget on the jobs market. UK house prices are expected to increase by 2.5% in 2025. However, the desire to move home remains driven by life stage and personal circumstances. We expect 1.15m housing sales to take place over the year in 2025, up from 1.1m in 2024." Robert Gardner, chief economist at Nationwide said: 'Providing the economy continues to recover steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth, where the latter is likely to remain broadly in the 2-4 per cent range in 2025.'
Activity in the housing market has been underpinned by strong wage growth – running at 5.2% in October – and slightly lower mortgage rates. The number of mortgages approved for house purchase each month rose above pre-pandemic levels towards the end of the year.
The Bank of England has cut interest rates twice this year, in August and November, to 4.75% and holds in December. However, since Rachel Reeves’s autumn budget, economists and traders have scaled back their expectations for further rate cuts because the chancellor’s £40bn of tax rises are forecast to push inflation slightly higher than it would have otherwise been.
Some of the measures introduced in the budget will be challenging for businesses, particularly the additional National Insurance Contributions effective from April 2025. Still, there is much to be positive about. Definitely raising taxes will rise inflation. The Invest 2035 strategy sets out a strong vision, highlighting growth areas including the life sciences, finance, and tech sectors and recognises the need for infrastructure improvements to underpin the growth agenda. The revision to the National Planning Policy Framework (NPPF) will start to feed through in 2025, with a return to mandatory housing targets and the introduction of the 'grey belt'. With it comes increased pressure for Local Authorities to review the Green Belt if they are unable to meet housing targets on brownfield land.
That coupled with sticky services inflation at 5% – limits the central bank’s scope to reduce borrowing costs. Financial markets are expecting another two to three rate cuts in 2025, which would take Bank rate from 4.75% to potentially 4% by the end of the year. What I doubt.
In addition, changes to stamp duty from 1 April are likely to generate volatility, property experts said, as buyers rush to complete before that date to avoid paying more as a result of a lower stamp duty threshold, and an extra band added into the stamp duty thresholds for second home purchases. So January to March should be busy, with a lull from April.
For tenants, 2025 should see private rental growth normalise, with average rent increases expected to fall sharply to 4% or lower. They rose by 9.1% across the UK in the 12 months to November, according to the ONS, and by 9.3% in England, a record high.
My prediction for 2025 would be only slight growth (up to 1%) in residential property market.
Main reason why properties have not dropped is lack of supply of properties in UK, hight growth population, mainly migration, around 1% ( 550,000+ people) . Many experts are predicting house prices will experience a growth in 2025 (from 2-4%), however, estimates for the scale of this growth are relatively conservative. Mortgage rates on fixed rate mortgages have been falling for several months thanks to better than expected inflation data and the widely held expectation that interest rates have now peaked at 4.75%, following the Bank of England’s (“BoE”) decision to hold the base rate in December 2024. The most important factors will be inflation (currently 2.6%, last year was 3.9%) target BoE is 2% and when will BoE decrease interest rate first time in 2025. Geopolitical situations will by critical too in terms of inflation stability, US new policy's, people’s sentiment and also unemployment data.
Author (Lubomir Trizuliak, MA, MBA)
Founder at www.key4you.co.uk (Bespoke Property Consultant)
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