House Prices Drop, But Lenders Warn It Won't Last

Nikka Sulton

House Prices Drop, But Lenders Warn It Won’t Last

House prices have experienced a drop for the first time in nine months, marking a shift in the market as the year drew to a close. According to data from Halifax bank, average house prices across the UK fell by 0.2% in December, bringing the typical value of a home down to £297,166. This decrease has limited the annual rise in house prices to just 3.3%, with the average price hitting a record high of £298,083 in November.

This price drop, coupled with a looming deadline for stamp duty relief, is expected to drive a surge in home purchases, particularly among first-time buyers. With changes to stamp duty set to take effect in April, first-time buyers will see the threshold at which they pay zero stamp duty reduced from £425,000 to £300,000. This reduction has prompted many would-be homebuyers to act quickly and secure a property before the changes come into effect.

Amanda Bryden, head of mortgages at Halifax, noted that the approaching stamp duty changes have motivated many first-time buyers to accelerate their plans to get onto the property ladder. She added that the changes are likely to encourage more home purchases in the short term, as prospective buyers seek to take advantage of the current system.

However, looking ahead to 2025, Ms Bryden warned that mortgage affordability will remain a significant challenge for many. As the Bank of England base rate is expected to decrease more gradually than initially predicted, homebuyers may continue to face difficulties in securing affordable mortgage rates.

“Provided employment conditions don’t worsen significantly from the recent softening, buyer demand should remain relatively strong,” said a market expert. “Taking this into consideration, we still anticipate modest house price growth for the year ahead.”

Nathan Emerson, chief executive of Propertymark, a professional body for property experts, expressed optimism for the start of the year. He predicted an “upbeat and confident” market, with many potential buyers in England and Northern Ireland looking to enter the market ahead of the upcoming stamp duty changes in April.

Mark Harris, chief executive of mortgage broker SPF Private Clients, noted that financial institutions such as HSBC, Halifax, and Leeds Building Society have already reduced some of their mortgage rates this month. Borrowers will be hoping that other lenders follow suit and that the Bank of England makes further rate reductions in the coming months.

Others have warned that the market may experience a slowdown in property purchases. Iain McKenzie, chief executive of the Guild of Property Professionals, noted that demand is expected to decline following the stamp duty changes. However, he added that the anticipated rate cuts could provide a boost to the market.

Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, pointed out that the two interest rate cuts in 2024 had not fully alleviated the mortgage struggles for many borrowers. She explained, “While average two and five-year mortgage rates ended the year lower than they began, the higher inflation reading in December could result in a slower pace of rate reductions in 2025. This means that mortgage rates may not decrease as quickly as many borrowers would hope.”