House prices in the UK dipped by 0.2% month on month in December – the first monthly fall since March last year – according to figures from Britain’s biggest mortgage lender.
Data published by Halifax shows the average price of a house fell slightly to £297,166 and comes after a 3.7% rise in November, based on separate figures from rival lender Nationwide.
“Recent rises in mortgage rates may have started to weigh on the housing market at the end of last year a bit more than previously thought,” said Ashley Webb, economist at the consultancy Capital Economics.
Amanda Bryden, head of mortgages at Halifax, added: “Providing employment conditions don’t deteriorate markedly from a more recent softening, buyer demand should hold up relatively well and, taking all this into account, we’re continuing to anticipate modest house price growth this year.”
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She agreed that while the housing market has been boosted in recent months by lower mortgage rates and the upcoming stamp duty changes, mortgage affordability remains challenging.
Will house prices rise in 2025?
Further interest rate cuts are expected in 2025. While this sounds like good news for the housing market, the outlook has been complicated by recent political and economic developments.
Inflation has crept up in recent months and could rise further in 2025, partly influenced by policies announced in the Autumn Budget. If inflation stays higher for longer, interest rates probably will too.
Some experts now think the Bank of England will only cut rates three or four times in 2025 – less than previously expected. This will probably mean mortgage rates fall more slowly than previously expected too.
In light of recent developments in the mortgage market, real estate consultancy Knight Frank has downgraded its forecasts for house price growth, but still expects prices to rise by 2.5% in 2025, 2% in 2026 and 3.5% in 2027. This is down from estimates of 3%, 4% and 5% previously.
Tax changes could also dampen buyer demand, with stamp duty thresholds reverting to their original levels from 1 April. This means buyers will need to pay tax on any amount over £125,000, rather than the current threshold of £250,000. The first-time buyer threshold will revert to £300,000 from £425,000.
We could see a surge in activity in the first three months of the year as buyers race to beat the deadline, with demand falling shortly after. Nationwide predicts a “period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes”.
Meanwhile, estate agent Savills has predicted that top-end properties will suffer the most, with investors being hit by extra stamp duty charges (such as the 5% surcharge on second homes) and changes to non-dom rules. It expects prime central London houses to fall in value by 4% in 2025.
On a regional basis, we could see a continuation of the north-south divide when it comes to house price growth.
Savills expects house prices to increase by 5.0% in 2025 in the North West, the North East, Scotland, and Yorkshire and the Humber. Prices in the East of England and the South West, however, are forecast to increase just 2.5% during the year.
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