In January, the UK’s house price growth showed a significant slowdown, with prices rising by just 0.1% month-on-month to £268,213, following a more robust 0.7% gain in December. This surprise deceleration suggests that the ongoing high borrowing costs, linked to record mortgage rates, are starting to have a noticeable impact on the housing market. The latest figures indicate that while house prices remain above previous levels, the rate of increase is slowing, reflecting the challenges faced by many prospective buyers.
Compared to the same time last year, house prices have still risen by 4.1%, but this represents a drop from the 4.7% growth seen in December, which is an indicator of the market’s weakening momentum. As mortgage rates continue to remain high, borrowing is becoming increasingly expensive, and the cost of living crisis adds further strain on buyers. These combined factors suggest that the housing market, which had been experiencing growth in recent years, is now facing significant headwinds as affordability becomes a growing issue.
Nationwide’s chief economist, Robert Gardner, highlighted that while there has been a modest improvement in affordability in the past year, the situation remains difficult by historical standards. He pointed out that, for an average UK earner looking to buy a typical first-time buyer property with a 20% deposit, monthly mortgage payments would make up 36% of their take-home pay. This figure is notably higher than the long-run average of 30%, underscoring the challenges many would-be homeowners face in terms of affordability.
This trend is further exacerbated by the continued rise in the cost of living, which is eating into household budgets and making it harder for many to save for a deposit or manage high monthly repayments. With mortgage rates likely to remain high for the foreseeable future, the outlook for the UK housing market in 2025 is uncertain. The question now is how long the market can withstand these pressures before a more significant shift occurs. Whether this slowdown is temporary or indicative of a longer-term trend remains to be seen, but it is clear that the housing market is currently navigating one of its most challenging periods in recent years.
House prices in the UK remain high relative to average earnings, making it difficult for many prospective homeowners to get on the property ladder. The house price-to-earnings ratio for first-time buyers stood at 5.0 at the end of 2024, significantly higher than the long-term average of 3.9. This disparity has been a key barrier for many, as saving for a deposit has become an increasingly difficult task. The situation is compounded by the record rise in rental prices in recent years, making it even harder for renters to save for a home of their own. Additionally, the ongoing cost of living crisis has further eroded renters’ ability to set aside funds for a deposit, leaving many stuck in a cycle of renting.
Sarah Coles, Yahoo Finance UK columnist and head of personal finance at Hargreaves Lansdown, pointed out that house prices are still under pressure from buyers attempting to buy before the end of the stamp duty holiday in March. This deadline has caused a rush of activity in the housing market, driving up prices and further limiting affordability. The combination of high prices and high costs has created significant obstacles for first-time buyers.
In light of these challenges, it is not surprising that a large proportion of first-time buyers are relying on financial assistance from family or friends. Robert Gardner, Nationwide’s chief economist, noted that in 2023/24, around 40% of first-time buyers received some form of deposit help, whether through a gift, loan, or inheritance. This reliance on external support highlights the extent to which many first-time buyers are struggling to afford a home without financial assistance, underscoring the ongoing affordability crisis in the housing market.
Despite the ongoing pressures in the housing market, the rate of homeownership in the UK has remained largely stable in recent years. According to Nationwide’s analysis, data from the latest English Housing Survey reveals that the homeownership rate stood at 65% in 2024, unchanged from the previous year. Additionally, the proportion of people owning their homes with a mortgage has increased slightly. However, the majority of homeowners (around 55%) own outright. This shift in homeownership patterns reflects changing demographic trends, particularly among older households, as more individuals reach the stage of owning their property outright as they approach retirement.
Robert Gardner, Nationwide’s chief economist, highlighted that although homeownership among younger age groups is still below levels seen in 2004, there has been some progress. For example, the homeownership rate for those aged 25-34 has gradually increased from 36% in 2014 to 45% in 2024. However, this figure is still significantly lower than the peak of 59% seen in 2004, which illustrates the ongoing challenges faced by younger buyers in securing homeownership.
Nationwide has also warned that the UK housing market is facing mounting affordability challenges. With borrowing costs continuing to rise, these challenges could lead to a further slowdown in house price growth. As affordability remains a key issue for many potential buyers, the combination of high prices and increasing borrowing costs is likely to put additional strain on the market, making it harder for many to access homeownership in the near future.
Alice Haine, a personal finance expert at Bestinvest, commented on the market conditions for the start of 2025: “While the start to the year has been slightly more muted than the previous month, demand remains robust. This is likely to continue over the next couple of months as buyers rush through deals ahead of an anticipated increase in stamp duty land tax from the start of April.”
Haine also noted that the government’s decision not to extend the current relief on stamp duty thresholds beyond the end of March will likely be a significant motivator for many first-time buyers. This looming change in stamp duty is expected to influence the decisions of those looking to buy property before the new rules come into effect.
Karen Noye, a mortgage expert at Quilter, echoed the sentiment, advising that 2025 is a good time for those thinking about moving to reassess their plans. “While the signs of market stabilisation are encouraging, there’s still some uncertainty, and careful financial planning will be key to navigating what could be a tricky year,” Noye said. This uncertainty has prompted many buyers to be more cautious, considering the potential for market fluctuations.
Nathan Emerson, the chief executive of Propertymark, a body representing property professionals, explained that a significant amount of activity in the market is likely driven by individuals wanting to complete their property transactions before the stamp duty increases in England and Northern Ireland in April. This rush to finalise deals before the deadline has been a notable trend as the deadline looms.
From April 1, the “nil rate” stamp duty band for first-time buyers in England and Northern Ireland will be reduced from £425,000 to £300,000, making the window before the change an important time for many prospective buyers to act quickly in order to secure a better deal.
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