Will interest rates fall again? Will landlords continue to lump it? And what will the new stamp duty deadline mean?
By David Byers
So 2025 is here and, much to everyone’s shock, estate agents are actually talking up the prospect of selling houses.
Among a blizzard of predictions in the first week of the new year, one from the estate agency Winkworth stood out. It boldly forecast that its website traffic would be “up 400 per cent on January 2” compared with … Christmas Day.
But what are the really valuable predictions for 2025? We gazed into our crystal ball and this is what we saw.
Mortgages will dictate where’s hot (and not)
The key question is: how high will interest rates be, and will they constrain the market?
Interest rates fell glacially in 2024, dropping from 5.93 to 5.48 per cent for a two-year fixed rate and 5.55 to 5.25 for a five-year deal — the slow pace of change challenged the market. This gradual fall ground to a near-halt after the October 30 budget, which the Office for Budget Responsibility said could stoke inflation, leading the Bank of England’s monetary policy committee to hold its base rate at 4.75 per cent in December.
This week, hopes of an early boost for rates appeared to have been dampened by a rise in yields on UK government bonds, which are used by banks to price fixed-rate loans. The yield on the UK’s ten-year gilt has risen to 4.84 per cent, up from about 4.55 per cent at the start of January and its highest level since 2008. Some smaller and more specialist lenders which are more sensitive to changes in market interest rates have raised their rates. If this continues, mortgage brokers said other lenders could follow.
So what’s in store for 2025? According to 51 economists polled by The Times, things could turn out better than expected. They think that the Bank of England will be forced to cut rates at least four times this year to boost flagging economic growth — an improvement on the previous widespread predictions of two cuts.
Whether this comes to pass will have a huge impact on the market, particularly in the southwest, southeast, London and east, where homes are more expensive. If rates remain sticky, buyers will continue to delay putting in offers, or do so at levels that sellers think are derisory.
It’s a scenario summarised by Nationwide’s analysis of 2024 released last week. It showed that the UK average house price went up by 4.7 per cent in 2024 (the strongest rate of annual inflation since October 2022), but it also showed a geographically divided market. The largest percentage rise was in Northern Ireland (7.1 per cent), followed by the north (5.9 per cent) and the West Midlands (4.7 per cent). Areas where prices are more expensive were by far the most sluggish. East Anglia, for example, had a 0.5 per cent rise, London 2 per cent and the southeast 2.3 per cent.
Data released last week by Halifax showed that the ten areas with biggest growth in 2024 were mostly towns with lower house prices, such as Stoke-on-Trent (17 per cent growth), Slough (15 per cent) and Oldham (15 per cent).
The 10 UK areas with the greatest house price growth in 2024
With mortgage rates predicted to remain stubbornly high, sellers will need to price their properties carefully in 2025. Homes last year were most in demand in places with the cheapest prices, particularly for landlords who faced higher taxes and bought in high-yield areas
| Stoke-On-Trent | £227,002 | £33,339 | 17 |
|---|---|---|---|
| Slough | £497,704 | £64,510 | 15 |
| Oldham | £250,546 | £31,951 | 15 |
| Bradford | £226,261 | £26,168 | 13 |
| Bolton | £252,070 | £28,839 | 13 |
| Barnsley | £224,886 | £25,161 | 13 |
| Wolverhampton | £278,083 | £30,680 | 12 |
| Doncaster | £228,040 | £23,669 | 12 |
| Dunfermline | £230,379 | £22,365 | 11 |
| Hamilton | £229,835 | £21,474 | 10 |
Unsurprisingly, eight of the ten weakest areas for price growth were in London or the southeast, such as Ealing, Southwark and Kingston upon Thames.
The mortgage market will also influence what kind of homes sell well in 2025. During the pandemic, detached homes were hot, but that trend reversed last year, as buyers shunned pricier properties. Terraced houses increased in value by 4.4 per cent in 2024 and flats by 4 per cent, according to Nationwide. Semi-detached properties recorded a 3.4 per cent annual increase and detached properties rose by 3.2 per cent.
The lesson of this story is that if you’re selling a larger home, particularly in the southeast, buyers will continue to be very careful over price. Use your common sense — if you think your home may be overpriced, set your sights a little lower.
Our mortgage prediction: New rates will average just above 4 per cent by the end of 2025 (with a 25 deposit).
There’s no rush to join the stamp duty splurge
One thing that excites estate agents is a stamp duty deadline, as it usually leads to a herd of bargain-hunters stampeding towards their windows.
From April 1 the tax will kick in at a purchase price of £300,000 (rather than £425,000) for first-time buyers. For those who are not first-time buyers the threshold will go down to £125,000 from £250,000.
Data from the property portal Rightmove suggests that from April 1 only 8 per cent of homes in London will not incur stamp duty for first-time buyers, while 24 per cent of homes in the southeast would be stamp duty-free. That is in stark contrast with the northeast, where 73 per cent of homes will still be exempt from the tax.
Rightmove said demand from buyers in London had already been rising significantly towards the end of 2024 as people rushed to complete purchases before the deadline — stamp duty cliff edges often cause buyers to act recklessly. The discount introduced during the pandemic had been due to end on March 31, 2021. The number of sales from February to March that year leapt from 143,460 to 177,300. Then in June, just before the extended July 1 deadline when the tax-free threshold really did reduce, the number jumped from 114,800 to 204,370, according to the estate agency Savills.
Robert Gardner, the chief economist at Nationwide, said the spring deadline this year was “likely to generate volatility, as buyers bring forward their purchases to avoid the additional tax”.
However, buyers may discover that a stamp duty holiday is a con. These periods of tax discounts almost always drive property prices up so that, in the past, many bargain-hunters have ended up paying more for properties than any relative saving made on stamp duty. Ray Boulger from the mortgage broker John Charcol said on a typical £500,000 property, the extra stamp duty would make up only 0.5 per cent of the purchase price and so even a small decline in prices after April 1 would make rushing to beat the March 31 deadline a false economy.
Our house price prediction: UK-wide growth of 4 per cent. Biggest growth in northwest (5 per cent), weakest in London (3 per cent).
Dominant first-time buyers may cash in on landlords selling up
A stamp duty hike and high mortgage rates made 2024 the year of the disaffected landlord — this is set to continue. On October 31, the stamp duty surcharge paid by buyers of second homes went up to 5 per cent. A landlord or second-homeowner buying a property worth £500,000 faced an additional bill of £10,000 overnight, from £27,500 to £37,500.
Would-be landlords were also buffeted by high mortgage rates, with the average five-year rate at 5.46 per cent compared with 5.91 per cent a year ago, according to the website Moneyfacts Compare.
Zoopla suggested that many landlords were selling off their properties, particularly in expensive areas of London, with 32 per cent of all homes up for sale in WC postcodes having been rented out in the past four years. Across the country, it’s 12 per cent. Expect the number of landlord sales, particularly in wealthy areas, to grow in 2025.
One of the government’s aims is to free up room for first-time buyers, who make up 49 per cent of all purchasers nationally — one of the highest proportions ever — and, in some areas, like Manchester (75 per cent) and Slough (73 per cent), much more.
First-time buyers cashing in on landlord sales will be a big story in 2025. The estate agency Hamptons said in 2024 that the proportion of properties sold by landlords which were bought by first-time buyers was at its highest level — 35 per cent, up from 16 per cent in 2016.
First-timers also benefited from an unprecedented wealth transfer from their parents, a trend that will continue. Gifts and loans from the Bank of Mum and Dad totalled £9.3 billion in 2024.
Our first-timer prediction: The Bank of Mum and Dad will hand a record £10bn to their kids this year.
A mixed outlook for renters
Radical renters’ rights which are likely to come into law this year or next promise a ban on “no fault” evictions and will force landlords to improve the energy efficiency of rental homes. The flipside, if you believe the National Residential Landlords Association, is that the tax clampdowns will result in a shortage of rental properties as landlords sell up.
Rightmove reported in December that each available rental property was attracting 11 inquiries, compared with six in 2019. However, more positively, rental costs on newly let properties in Britain rose by 2.6 per cent over the year to November, the lowest annual increase since November 2020 (2.4 per cent).
Our rent prediction: 3.7 per cent UK-wide rise — but just 1.5 pr cent in London, where tenants have already absorbed huge increases.
Trouble in (prime) paradise?
For wealthier buyers, tax headwinds, such as the introduction of 20 per cent VAT on private school fees, will constrain them, although they won’t be too concerned about mortgages.
One other disincentive will be a raft of taxes for holiday homeowners, which contributed to a sharp fall in demand for pricey country houses in 2024. Agents also reported a growing sell-off of second homes in Cornwall, Norfolk and Dorset due to plans for massive council tax increases that are due in April.
Plus, for the richest buyers, many who come from overseas, Labour’s decision to end non-dom status has led to a near-collapse in parts of the super-prime property market in London.
An analysis by Beauchamp Estates using the LonRes transaction database, showed a sharp fall in sales of homes worth more than £15 million last year. A total of 40 such homes sold in 2024, compared with 54 the year before. The total value of the homes that did sell fell 34 per cent to £856.5 million, compared with £1.3 billion in 2023.
Those selling London and home counties properties in the £1.5 million to £2 million bracket may have more luck, however. Because of the shortage of quality family homes in affluent suburbs, agents say the right property of this type could sell swiftly — particularly if buyers are priced out of private schools in larger numbers and looking nearer to good state schools. “Last year we saw huge competition in the market up to £2m in four-bedroom Victorian terraces in West Hampstead and Fulham,” says Camilla Dell of the agency Black Brick.
Also in 2025, there may be an influx of liberal Americans fleeing due to the Donald Trump administration. Our prime prediction: A 5 per cent fall in prime central London, as richer buyers shun higher taxes, but down by 1 per cent in regional markets.
