Posted on December 18, 2024 December 18, 2024

UK Property Market Forecast 2025

A Detailed Analysis of Current Trends and Future Prospects

Executive Summary

The UK property market has demonstrated remarkable resilience throughout 2024, defying earlier predictions of stagnation. Instead, the market has experienced stabilisation and moderate growth, with projections for 2025 indicating further positive momentum. Buoyed by improving economic conditions, falling mortgage rates, and a shift in market sentiment, house prices and buyer activity are expected to climb, although potential challenges such as stamp duty changes and wage growth uncertainties remain on the horizon.

Market Overview: December Trends and Seasonal Adjustments

New seller asking prices have fallen by a seasonal 1.7% this December, equivalent to a £6,395 decrease, bringing the average asking price to £360,197. This decline aligns with the typical pre-Christmas dip, as sellers aim to attract buyers during a period of reduced market activity. Despite this, house prices have ended the year 1.4% higher than December 2023 levels, reflecting overall market resilience.

The festive season typically sees reduced activity as buyers turn their attention to holiday preparations. However, this year, activity has remained notably robust, with the number of sales agreed up by 22% compared to the same period last year. Furthermore, new buyer demand has risen by 13%, showcasing a stronger appetite for property acquisitions than was seen in 2023.

The Boxing Day Bounce: A Key Date in the Property Market Calendar

Boxing Day has increasingly become a pivotal moment for the UK housing market. In 2023, a record number of sellers launched their properties for sale on this day, capitalising on renewed buyer interest. Rightmove reported a dramatic 273% surge in buyer demand between Christmas Day and Boxing Day, driven by fresh property listings and increased market activity. This trend is expected to continue in 2024, creating a dynamic start to the New Year.

According to Tim Bannister, Rightmove’s Director of Property Science:

“The 1.7% average monthly fall in December asking prices can be seen as a festive gift for buyers still active in the market. This slight drop in prices serves as a timely incentive for motivated buyers amidst the holiday distractions. Looking ahead, Boxing Day has firmly established itself as a key date for movers. It’s the moment when the Turkey is finished, games are set aside, and mobile phones come out to kick-start property searches for the year ahead.”

Regional Dynamics and First-Time Buyer Market Resilience

While the national market has experienced a seasonal downturn, prices in the first-time buyer sector remain comparatively strong, particularly for homes priced below £300,000. In more affordable regions such as the North East, prices for typical first-time buyer properties have risen by 1.0% this month, contrasting with the national average 1.7% fall. This resilience reflects the sustained demand from first-time buyers who are less affected by stamp duty changes due to the £300,000 exemption threshold.

Conversely, in higher-priced regions such as London and the South East, the looming stamp duty deadline in March 2025 has spurred increased activity among sellers of smaller properties. Many are seeking to complete sales before higher tax rates come into effect. Over the past four weeks, the number of sellers listing two-bedroom homes or smaller in London has risen by 20%, with the South East following at 16%.

2025 Market Forecast: Growth and Emerging Challenges

Rightmove predicts a 4% rise in new seller asking prices for 2025, underpinned by anticipated reductions in mortgage rates. Lower borrowing costs are expected to boost affordability and stimulate further market activity. However, potential challenges include the impact of the 2025 stamp duty changes and broader economic factors such as inflation and wage growth uncertainties.

Key Forecast Highlights for 2025:

Nationwide Price Growth: Predicted at 2.5–4% year-on-year, depending on regional variations.
Mortgage Rate Reductions: Expected to improve affordability and buyer confidence.
Stamp Duty Influence: Likely to create urgency in early 2025 but could dampen activity in higher-priced sectors later in the year.

Affordability and the First-Time Buyer Landscape

Affordability remains a central theme in the property market. First-time buyer homes (defined as properties with two bedrooms or fewer) have shown resilience, with average prices remaining accessible to many. Analysis of average monthly mortgage payments and rents indicates a growing advantage for buyers, particularly as mortgage rates are expected to decline further in 2025.

The affordability to buy a first home is calculated using the Office for National Statistics’ (ONS) Average Weekly Earnings (AWE) data, multiplied by a loan-to-income ratio of 4.5. This provides a benchmark for the typical borrowing capacity of first-time buyers, highlighting the ongoing opportunities in this segment of the market.

Broader Economic Context and Sentiment Shift

The property market’s performance mirrors the broader UK economic landscape, which has displayed adaptability in the face of uncertainty. Aneisha Beveridge, Research Director at Hamptons, notes:

“The mood of the housing market has shifted from trepidation to cautious optimism. Buyers and sellers alike are re-entering the market with greater confidence, buoyed by stabilising prices and improving affordability.”

This shift is reflected in a 25% increase in market activity on platforms such as Zoopla, underscoring renewed buyer engagement and investor interest.

Strategic Recommendations for 2025

For Buyers:

Act swiftly to take advantage of pre-stamp duty deadline opportunities.
Focus on regions with strong price growth potential, particularly in the North and Midlands.

For Sellers:

Leverage the Boxing Day bounce by listing properties early in the New Year.
Consider market timing carefully, particularly in higher-priced areas facing potential tax increases.

For Investors:

Diversify geographically to include emerging markets with robust growth indicators.
Monitor interest rate trends and affordability metrics to identify optimal investment windows.

Summary of UK Property Market Forecast 2025

New Seller Asking Prices:
- Seasonal drop of 1.7% (-£6,395) in December, bringing the average price to £360,197.
- Prices end 2024 up 1.4% compared to December 2023.
Boxing Day Bounce:
- Boxing Day 2023 saw record activity, with new sellers and a 273% jump in buyer demand compared to Christmas Day.
- A strong Boxing Day bounce is anticipated in 2024 due to increased buyer engagement and fresh property listings.
Market Activity:
- Number of sales agreed is up 22% year-on-year, while buyer enquiries have risen by 13%.
- First-time buyer properties are holding prices well, especially below the £300,000 threshold.
Regional Dynamics:
- Sellers of smaller homes in higher-priced areas, like London and the South East, are rushing to avoid the March 2025 stamp duty deadline.
- Stronger price performance is seen in more affordable regions, like the North East.
Affordability and Mortgage Trends:
- Anticipated mortgage rate drops are expected to improve affordability and stimulate market activity in 2025.
- First-time buyer affordability remains a key focus, with typical homes under £300,000 less affected by rising taxes.

2025 Projections:
- Rightmove predicts a 4% rise in new seller asking prices for 2025, with increased market confidence due to falling mortgage rates.
- Regional growth disparities persist, with Northern Ireland and the North West likely to lead gains.
Challenges Ahead:
- Stamp duty increases and broader economic factors like inflation and wage growth may temper market activity later in 2025.

Conclusion

The UK property market enters 2025 with cautious optimism, underpinned by strong activity levels, improving affordability, and the potential for further growth. While the looming stamp duty deadline and other economic uncertainties present challenges, the resilience of key market sectors, particularly first-time buyer properties, suggests a dynamic year ahead. Buyers and sellers who act decisively, particularly in regions with stronger growth prospects, stand to benefit most in a market poised for steady progress.

Posted on March 27, 2023 March 28, 2023

Trellows Property Market Update March 2023

An overview of the UK residential property market

Summary

This month saw the 11th interest rise in 15 months, taking the base rate from 0.1% in December 2021, to 4.25% a rise of 4,250%. The current rate may not be high by historical standards and still remains lower than the median average, but following 15 years of historical lows, that have resulted in much higher borrowing overall, the effects of the increase have had an enormous effect on borrowers, as the larger average mortgage has amplified the effects of the increase, but how does this affect the market overall?

Background

This month, the UK base rate has risen to its highest level since 2008. There are many contributing factors to the need for the base rate to rise, although it was inevitable that the base rate has been at a historical low since the last financial crisis and therefore, it was only a matter of time.

In real terms, the current rate of 4.25% is having a greater impact on borrowers that it would have done in the past, due to the higher earning to borrowing ratio, as the value of mortgages has risen exponentially.

With inflation for 2022 ending at over 10% (although it much higher in real terms) and although it was predicted to fall this year, the latest figures for March, confirmed that contrary to falling, inflation had risen to 10.4% which signalled the latest rate rise.

The true impact of higher borrowing costs along with the general slow-down of the property market has not made its way to the public forum yet, as there is long time lag between agreed sales and published figures.

The sales that are completing now, are still for the main part, sales that were agreed before the disastrous mini-budget, that rocked the money markets, it then takes upwards of three months from the point of completion before figures are published on the land registry website.

The figures that we do have, indicate that on average, property is already at or below the figure it was at he beginning of 2022, with further falls on the horizon.

However, if we then factor in an anticipated compound inflation rate for 2022-2023 by the end of this year, that is on course to be in excess of 20%, then we can see that in real terms, property need only fall by 10% which is being accepted to be a minimum, by most of the industry pundits, whether they admit it openly or not, for house prices to end the year 30% lower than they were at the start of 2022.

In addition to this, there has already been a fall in wages(adjusted for inflation) of around 5% minimum, with the possibility of a further 5% fall by the end of this year, which has seriously effected affordability.

The inevitable fall in prices, is not by any means anything to be alarmed about, the combination of affordability, due to inflation and lower wages (when adjusted for inflation) in addition to all the other factors within the UK economy, but should we be alarmed by this and expect a property meltdown?

The short answer is no, there is always a correction in property prices at some point in the cycle and this is simply that time now. The impact of exiting lockdown, rocketing energy costs and an over-heated market, thanks to the stamp duty holiday have contributed to the ‘perfect storm’ which should not come as any surprise to any of us.

London property market snapshot

Interest Rates 2020-2023

Average house price change since 2007

Completed house sales 2015-2022

The average house price change since January 2023 is even steeper than the fall in 2008.

As we can see, July 2022, was clearly the peak of the current cycle, with completions falling to their lowest level since 2008 (with the exception of the lockdown)

Additional contributing factors

The Renter’s Reform Bill’ is expected to get through parliament in the next few months, which will transform the rental market significantly. This on top of the Section 24 income tax act, has contributed to an exodus of buy-to-let landlords from the market. Although there is an increasing entry in the buy-to-let market by the corporations, (15% of property sales in 2022, were to institutional investors) with Lloyds Bank declaring that it intends to be the UKs largest landlord by 2025 and even Tesco making an entry in the ‘Build-to-Rent’ market, these institutional investors are not likely to be taking up the properties off-loaded by exiting buy-to-let landlords.

On top of this, there is the anticipated raising of the minimum EPC rating for rental properties, from the current ‘E’ to a ‘C’ in 2025, although this has yet to be confirmed. This has certainly added fuel to the fire, with over 60% of rental properties in the UK being rated ‘D’ or lower, the cost to landlords could be prohibitive.

In addition to this, yet more bad news for landlords, has been the recent increase in the ‘stress-test’ by most buy-to-let lenders. When this was introduced, it was set at 125% of the rental income, that is to say, that the rent needed to be at least 125% of the prevailing interest payments. However, many lenders have increased the rate to as much as 141% in recent months, which added to significantly higher rates, many landlords are failing the stress tests and therefore unable to re-fix with a better deal, leaving them exposed to BTL variable rates, which are as high as 9%.

All this factors combined have spelt disaster for the thousands of individual BTL landlords.

Conclusion

Whilst the current situation may seem to be the recipe for Armageddon in the property market, there are also many reasons why the market will not grind to a halt.

First Time buyers:

There is without doubt a growing number of first time buyers, who should be very careful about buying at this time with a small deposit of course, as they risk finding themselves in negative equity for the next few years, but as the slide in prices begins to ease, there will be a tipping point, where those who can, will begin to enter the market..

Next Time Buyers:

Regardless of the situation in the property market, this need not be an obstacle to those who need to move and for those moving upwards, there could even be a benefit. The key here is to ensure that you are using a good estate agent, who is not only going to be realistic about the property market, but one who will also work hard to ensure that your property is noticed amongst the increasingly growing number of properties coming to market.

Albeit in lower numbers, properties are still selling, but it is only those that are priced realistically that are finding buyers. The key for next-time-buyers is that although they may need to take an offer lower than they had hoped for, that drop can/should also be reflected (in percentage terms) on the property that they are buying.

If you want or need to sell, in the current climate, the worst thing that sellers could do, is to go on the market too high, the longer that their property is on the market, the lower the final selling price will be.

Investors

There is a large number of investors, already looking for a bargain, but far more who are waiting for the fall to level off, before they begin to enter the market, therefore many of the properties that are either on the market, or due to come to market this year, will find buyers, albeit at a lower price, which will cushion the fall.

Demographics

The ownership of property has changed significantly over the last two or three decades, with an increase in numbers who are either renting, or mortgage free. Those who need to rent, will continue to do so, regardless of the rising rents, even if many do decide to resume living at home, the demand for rental properties continues to out-strip supply.

These two factors combined, result in the effects of higher interest rates impacting a smaller percentage of households in the UK, therefore the likely hood of the housing crisis of the early 90s, where thousands of homeowners were handing back their keys, very unlikely.

Posted on December 12, 2019 September 12, 2020

December National Market Update

Millions across the country start the countdown to Christmas by opening their advent doors each day, but who knows which party will be behind the door of number 10 Downing Street. Time is ticking to the first December election in nearly a century. The housing market has remained remarkably resilient in a year that has been dominated by Brexit and annual price growth remains in positive territory across much of the country.

Download the full report HERE.