A new government, global conflicts, and inflation have profoundly impacted interest rates and house prices in the UK, as well as creating a landscape where affordability is the preserve of the privileged few. Read here for more on UK housing market outlook 2025:
Economic Backdrop
Interest rates and inflation, together with post-Brexit issues, have created a cost-of-living crisis in the UK. The UK Consumer Price Index Inflation rate is 3.0%, thanks largely to higher energy, water, food, and transportation costs. The Bank of England predicts it could hit 3.7% this year, and the recent government debt sell-off could have painful knock-on effects.
The average British salary grew from £34,963 to £37,430 in 2024, which helped offset rising costs. Unemployment remains low at 4.2%, and the Bank of England has reduced the base rate of interest. However, these are uncertain times.
Mortgage Rates and Housing Affordability in 2025
Mortgage rates are lower than in early 2024 when the average peaked at 5.5%. Now, 4-5% is the new normal, but one major factor that will influence rates in 2025 is the remortgaging cycle. In 2025, 1.8 million fixed-term mortgages will come up for renewal, with 740,000 taken out in 2020 during the Pandemic-led ‘race for space.’
Those fixed-rate mortgages expire this year, and some simply won’t be able to pay the increased rates. There will be opportunities if this turns into a fire sale and some might simply wish to get a house valuation, cash in on the capital gains, and exit the market.
The end of the stamp duty holiday for first-time buyers in March will reduce the 0% threshold to £300,000 from £425,000, which could cause a ripple in the market as buyers try to get their deals over the line in time.
First-Time Buyers in 2025: A Changing Demographic
The average age of first-time buyers has steadily increased to 34 from 29 at the turn of the century. Soaring house prices, stagnating wages, higher deposit requirements, and more stringent lending criteria after the 2008 crash have all made it more difficult to get on the housing ladder.
Around 40% of first-time buyers receive significant help from family, with a £25,000 average gift for a deposit. A survey by Lloyds Bank revealed that the average first-time buyer deposit in 2024 was £61,090, with an average property price of £311,034.
For those without family financial support, the first rung on the housing ladder is a tall order. 18% of 25-34-year-olds in the UK live with their parents, and 47.8% of 25-34-year-olds have £1000 or less in savings.
Housing Supply and Availability in 2025
Demand continues to outstrip supply in the UK property market. Technically, the market needs 375,000 new homes each year, but in 2023, just 190,000 new homes were actually finished.
The UK population is expected to hit 73 million by 2036, up from 63 million in 2011, and it’s an aging population. More than 16% of the population should be 70 and over within the next decade, so there is a growing demand for accessible housing and quality retirement homes that simply aren’t getting built.
This prevents elderly people downsizing and keeps family houses off the market – driving up demand and prices.
Buy-to-Let Market in 2025
The buy-to-let sector is shifting from smaller private investors to larger companies and institutional investors. Approximately 20% of landlords are looking to downsize their portfolios due to rising interest rates, increased taxation, and tougher regulations. There are 6% fewer landlords now than in 2020, yet the number of rental properties has increased by 3% in the same period.
With 12 renters for every property, double the pre-pandemic level, there’s healthy demand for quality rentals, but the market is still consolidating.
Sustainability and the Housing Market
Energy efficiency is a basic necessity for new-build homes, and most have an EPC rating of A or B at worst. Retrofitting existing homes is becoming a challenge due to the costs and the lack of qualified workers. This will take an additional 251,500 construction workers and more than 59,000 HVAC technicians. There simply isn’t the training infrastructure to meet that demand. With the UK government’s ambitious Future Homes Standard coming into force this year, sustainability and energy efficiency could become a much bigger factor in house prices in 2025.
Will the Housing Market Crash in 2025?
There are no obvious indications that the housing market will crash in 2025, and the general consensus is that growth will continue at a slowed pace. External geopolitical factors, including US economic policy and several global conflicts, could easily create financial instability and a butterfly effect that hits the housing market. Even with potential economic headwinds, consumer confidence is still high as official data from the Bank of England shows outstanding residential mortgage balances reached an all time high and new money being lent out by banks rose in the last quarter of 2024.
