According to property website Rightmove, the average price of a UK home has experienced its largest increase in the new year since 2020. In January, the average house price rose by 1.7%, amounting to an increase of approximately £5,992, pushing the average asking price to £366,189. This marks a significant uplift compared to previous years, signalling a potential recovery in the housing market after a period of stagnation.
However, while the increase is notable, the current price is still £8,942 lower than the record high set in May 2024. This gap reflects the ongoing affordability challenges many potential buyers are facing, particularly as wage growth struggles to keep pace with rising housing costs. The imbalance between high demand and limited housing supply is contributing to the inflationary pressure on property prices.
In addition to the rise in prices, other indicators point to a more active market. The volume of new properties coming onto the market has increased, as well as the number of buyers reaching out to estate agents and the number of sales being agreed upon. These positive signs suggest a stronger start to the year compared to the same period in 2024, indicating that buyers may be becoming more confident despite ongoing economic uncertainties.
That being said, uncertainties persist within the housing market. The trajectory of interest rates remains a key concern, particularly with the potential for future cuts that may not be as swift or substantial as previously expected. The “sticky” nature of mortgage rates, which have remained relatively high despite recent economic changes, is also putting a strain on buyers’ ability to afford properties. Additionally, the impending changes to stamp duty in April could have a significant impact on property transactions, especially for those in the higher tax bands. These factors combine to create a sense of cautious optimism, with many wondering how the market will respond to these evolving conditions over the coming months.
Rightmove anticipates that smaller homes, typically favoured by first-time buyers, will be the most affected by upcoming changes to the stamp duty threshold. From 1 April 2025, the “nil rate” stamp duty threshold for first-time buyers will decrease from £425,000 to £300,000. This change will primarily impact England and Northern Ireland, where stamp duty applies. While first-time buyers in less expensive areas of England are expected to remain largely unaffected by this reduction, it will likely cause challenges in more expensive regions, particularly in the lower price brackets of the housing market.
This adjustment to the stamp duty threshold is seen as a potential hindrance for first-time buyers in higher-priced areas. Rightmove predicts that the £300,000 threshold will act as a drag on the market, especially for those trying to purchase in more expensive locations. In addition to this, some sellers entering the market in the new year may be setting their asking prices too high, potentially making their properties less attractive. As a result, these homes could be overlooked in favour of more competitively priced options nearby, which could affect overall sales activity.
Despite this, Rightmove anticipates that the average asking price for homes will rise by 4% throughout 2025, although the market may still face challenges. Colleen Babcock, a property expert at Rightmove, highlighted that with many homes available for buyers to consider, sellers will need to ensure their properties stand out. This could be achieved through competitive pricing, appealing features, or immaculate presentation of the home. Babcock also emphasised the importance of sellers adhering to their agent’s recommendations, particularly when it comes to setting a realistic price, as many buyers continue to struggle with affordability.
Babcock further noted the difficulties faced by first-time buyers, who are already battling rising rents, limited support schemes, and the prospect of higher stamp duty fees from April. These financial pressures make it harder for them to save for a deposit while navigating a housing market that is challenging to enter. However, she expressed cautious optimism for 2025, pointing to the early indicators that show promise. She believes that for the positive momentum to continue, the Bank of England will need to implement early and ongoing base rate cuts, which would hopefully lead to a reduction in mortgage rates.
Jordan Halstead, CEO at Jordan and Halstead Estate Agents in Chester, also shared his perspective. He noted that sellers seem more receptive to valuation recommendations than before, which he attributes to a better understanding of the current market dynamics. Halstead suggests that the higher mortgage costs have led to more realistic expectations among sellers, contributing to a more balanced approach to property pricing in the early stages of 2025.
Tom Bill, head of UK residential research at Knight Frank, recently discussed the impact of rising mortgage costs on the housing market. He emphasised that affordability will become an increasingly important consideration for buyers as mortgage rates rise. Bill predicts that as demand spreads across the country, traditionally less popular locations will gain attention from more buyers. This trend could lead to stronger price growth in more affordable areas, where the demand will be driven by buyers with specific needs.
His insights align with the predictions made by property website Zoopla, which forecasts that housing markets in Scotland and northern England will show promising potential for house price growth in 2025. Zoopla identified several cities in England, such as Newcastle, Leeds, Stoke-on-Trent, Wigan, and Carlisle, as having resilient markets. These forecasts are based on various factors, including home affordability, the speed at which properties are selling, and how much asking prices are being adjusted to stimulate demand.
Southern England, however, continues to face challenges due to higher mortgage rates, which are affecting its already expensive property market. In contrast, Scotland remains one of the UK’s most affordable regions relative to incomes, with properties in this area typically selling faster. Zoopla’s Richard Donnell has forecasted a 2.5% increase in average UK house prices in 2025. He believes that northern England and Scotland hold the most promise, but there is potential for growth across the UK, particularly in areas where home affordability and market demand are in favourable balance.
Donnell advises that serious sellers in 2025 should carefully consider local market conditions when pricing their homes. Understanding these local factors will be crucial for determining an appropriate asking price. He suggests speaking to local agents to gain insights into the specific conditions of the area, ensuring that sellers can position their homes effectively in the market to attract buyers.