House prices near record high as stamp duty hike looms

UK house prices rose by 3.4% on an annual basis in October, according to official figures published today. It takes the average price of a UK property to £292,000. On a monthly basis, prices were up 0.2%.

House prices are now within touching distance of the record high achieved in August this year, having spent much of the past two years in recovery mode.

It could be too soon for homeowners to celebrate, though, as some of the recent gains could be being driven by impending tax changes.

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Stamp duty thresholds are set to fall at the start of April next year, when temporary relief measures come to an end. Under current rules, buyers pay zero tax on the first £250,000, but this will fall to £125,000 once the thresholds revert to their original levels.

First-time buyers will be hit by the changes too, with their tax-free threshold falling from £425,000 to £300,000.

“With stamp duty thresholds in England lowering from April, we’re seeing early signs of first-time buyers reacting,” Rightmove property expert Tim Bannister said earlier this month.

“In London and higher-priced areas, where first-time buyers are most likely to be affected, we’re seeing some pull forward their plans to try and avoid higher charges,” he added.

Other experts suggest it could be too early to say whether recent gains have been driven by impending tax changes or an improving interest rate backdrop. However, most expect to see an increase in rushed purchases as we head into the new year.

“Even if it’s not a major factor now, it will be a feature of the spring, and it’s unclear at the moment whether buyer enthusiasm will endure when the tax break comes to an end,” said Sarah Coles, head of personal finance at investment platform Hargreaves Lansdown.

Will house price growth continue in 2025?

Mortgage affordability has improved over the past year, partly driven by cuts to the base rate, however mortgage rates are still significantly higher than they were three or four years ago. The average two-year fixed-rate mortgage now costs 5.46%, according to Moneyfacts, while the average five-year rate is 5.23%.

At these levels, rates are still too expensive for many first-time buyers. Meanwhile, millions of existing homeowners are having to absorb higher costs as they come to the end of a relatively cheap fixed period. Industry body UK Finance says 1.6 million deals were due to end in 2024.

High living costs are also making it difficult to save – particularly for those who are currently renting. Average rents have risen by more than 9% over the past year, making a dent in some buyers’ deposits. Data from Hargreaves Lansdown suggests the average renter now has just £79 left over at the end of each month.

Despite this, the latest survey from the Royal Institution of Chartered Surveyors (RICS) showed some positive sentiment in the housing market in November, with estate agents reporting a slight uptick in buyer demand.

Headwinds could lie ahead, though, with interest rates likely to fall more slowly than previously expected over the course of 2025. The stamp duty hike in April could also act as another barrier to affordability.

Real estate consultancy Knight Frank expects house prices to grow 2.5% in 2025, 3% in 2026 and 3.5% in 2027, it revealed last month. This is down from its previous forecasts of 3%, 4% and 5% respectively.

Where are house prices rising the fastest?

Of the UK regions, annual house price growth was highest in Northern Ireland (6.2%), followed by Scotland (5.5%). Growth was lowest in England, at 3%.

Of the English regions, prices grew fastest in the North East, increasing by 4.7%. London was the region with the lowest growth, at 0.2%.

Prices in the capital are particularly high, with the average house now costing £519,579. This suggests affordability limits have become stretched.

^{Source: HM Land Registry. Figures published on 18 December, covering the year to October.}