House prices in Britain are set to increase at a faster rate than inflation in 2025, experts say, meaning it could get harder for people to get on the housing ladder.
Between September 2023 and 2024, there was an increase in house prices of 2.9 per cent, according to the Government’s Land Registry. This was higher than inflation, but lower than average wage rises.
And most forecasters predict there will be faster growth than this in 2025, which could make it more challenging for people to buy for the first time, as they will need bigger deposits to afford homes.
Falling mortgage rates could mean that once homes are bought, the monthly repayments are a little lower, however.
The Centre for Economics and Business Research (CEBR) predicts that there will be house price growth of 4.1 per cent across the UK in 2025.
Savills estate agency is forecasting growth of 4 per cent, while Hamptons suggests it will be at a lower rate of around 3 per cent.
In the Bank of England‘s Monetary Policy Report, published in November, it forecast that inflation would reach 2.7 per cent in the final quarter of next year, which means house prices will grow faster than prices generally, if the expert predictions are correct.
Charlie Cornes of CEBR told The i Paper the growth would be “driven by increasing affordability and the continuation of interest rate cuts”.
Economic forecasters expect multiple cuts to interest rates in 2025, with this feeding through to cheaper mortgage rates.
Cheaper mortgage rates generally mean buyers can afford to borrow larger amounts of money.
The base rate is at 4.75 per cent, while inflation is running at 2.6 per cent.
Experts have previously said that some of the Government’s policies could slow house price growth in 2025 and beyond.
But this is not likely to mean prices will fall for those looking to get on the ladder, it just means they will grow at a slightly slower rate than otherwise.
How will Government policies affect house prices?
Chancellor Rachel Reeves announced in the Budget in October that second-home buyers, landlords and companies will pay an increased higher rate of stamp duty on additional properties, while the threshold under which first-time buyers are exempt from stamp duty will also be cut.
Experts have said this could stop house prices growing as dramatically as they would otherwise.
“First-time buyers paying between the new and old nil-rate band (£300,000 and £425,000) stand to be hit the hardest by the tax hike. Assuming the cash comes out of their deposit, for each £1,000 paid in stamp duty, a buyer with a 5 per cent deposit buyer loses £20,000 off their maximum purchase price, which can significantly reduce their purchasing power,” said Aneisha Beveridge of Hamptons estate agency.
Labour has detailed plans for a 61 per cent increase in housebuilding in England, from 229,942 a year to 370,408 over five years.
The Government has made a promise to deliver 1.5 million new homes within the next five years, as it says 1.3 million households are on social housing waiting lists.
It is understood that the Government is aiming to build more houses in the places where homes are currently the most unaffordable and expensive to buy, which signals where the highest demand is.
Experts have said that the new housing targets alone would be unlikely to have a significant impact on prices nationally in the short term, though higher house building over the long term could “suppress” future growth.
Charlie Cornes, senior economist at the Centre for Economics and Business Research, previously told The i Paper some coastal areas particularly in the South West of England could face “price declines in the situation of increased homebuilding”, though he added it would depend on the scale.
There has been some pressure on Labour to introduce policies to boost the spending power of first-time buyers, but it has resisted these calls so far.
One change that some campaigners have called for is an increase to the Lifetime ISA cap, from £450,000.
Lifetime Isas (Lisas) were launched in 2017 and are designed to help people aged 18 to 39 buy their first home or, much less popularly, to save for retirement. Savers get a 25 per cent government boost when they use the funds to buy a home, but they are not allowed to use the money to buy property costing over £450,000.
If they do not use the money to buy a home under this amount, but withdraw it before retirement, they are hit with a penalty. The way this works means it is levied after buyers receive the bonus, so if you save £1,000 and get a £250 bonus, you’ll have £1,250 total, but will be hit with a penalty of £312.50 on withdrawal.
Back in September, minister Tulip Siddiq said the cap was set at “an appropriate level” so no change to this is expected in 2025.
What will happen to prices in 2025?
Forecasters are generally expecting some house price growth next year, but they differ on the scale they expect and also how they think it will be reflected in different regions of the UK.
Lucian Cook, of Savills, said: “The direction of mortgage rates has been key to buyer decisions over the past two years, and decreased monthly mortgage costs are now feeding through in to improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.
“A steady improvement in affordability should allow for house price growth to gain momentum over the next couple of years. But there is still some potential for a bumpy ride.”
Hamptons meanwhile is expecting a higher rate of growth in London and the South East, whilst Savills believes the largest concentration of growth will be in Scotland and the North East and West of England.
Emily Williams, director of research at Savills, said: “Lower levels of homeworking and the need to return to commuter hotspots near major employment hubs has driven slightly stronger than expected performance in London over the last 12 months.
“We expect to see some residual impact of the unwinding of the ‘race for space’ in 2025, bringing growth in the South West and East of England below that of the capital.
“But beyond 2025, affordability will have the biggest influence in every region. Despite falling mortgage rates, buyers in London and the South East will still need to borrow more relative to their income and accumulate a bigger deposit to buy, constraining house price growth.”
Hamptons said in its report: “Price appreciation in London is expected to ripple out to other regions more rapidly than in the past, particularly benefiting other markets in the South of the country.
“However, the cyclical nature of the housing market means that we forecast that the North West, Yorkshire & The Humber and Wales will have seen prices rise more in 2022 alone than they will over the next four years.”
These areas have seen high growth than in other parts of the UK in recent years, and so their capacity for further growth is limited.
The maps show the forecasted regional house price growth in 2025 from both estate agents.
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