More evidence is emerging of a slowdown in house prices as the change in stamp duty thresholds continues to hit the market.
Buyers and home movers rushed transactions through in the first three months of the year before the tax-free allowances dropped, resulting in a busy start to the year, but this is now restricting market activity.
First-time buyers now begin paying stamp duty once a home is worth more than £300,000, down from £425,000 previously. Meanwhile, home movers have seen the tax-free threshold drop from £250,000 to £125,000.
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The latest Nationwide House Price Index shows average house prices declined on a monthly basis between May and June, dropping by 0.8%. That is the biggest monthly decline in more than two years.
Tom Bill, head of UK residential research at Knight Frank, said the legacy of the March stamp duty cliff edge is now high supply and softer demand, which is putting downward pressure on house prices.
He said: “The good news is that rate cut expectations are growing due to the weaker UK economic outlook. The bad news is that the chancellor has zero financial headroom to play with, which means a re-run of 2024 and a game of ‘guess the tax rise’ ahead of the Budget.”
What do other house price indices show?
It comes as Land Registry data – which covers more of the market as well as cash sales – shows stamp duty changes put the brakes on the property market in April. Transaction volumes plummeted 64% in the month and house prices fell 2.8%, according to official figures published on 18 June.
On an annual basis, house prices rose by 3.5% in the 12 months to April, down from a revised reading of 7% in the 12 months to March. It means the average property now costs £265,000, which is around £9,000 higher than a year ago.
HM Land Registry is the most authoritative source of house price data, but its reports are published with a six-week time lag. Other house price indices are more timely. Some of these suggest price growth is either slowing or declining.
For example, as well as a 0.8% monthly drop, Nationwide’s House Price Index reported a slowdown in annual price growth from 3.5% to 2.1% between May and June.
Despite this, some experts remain optimistic.
Although Halifax reported a 0.4% monthly drop in May following a “modest” rise of 0.3% in April, the bank’s head of mortgages said these “small monthly movements” pointed to a housing market that has remained “largely stable” in the wake of stamp duty changes.
Going forward, further interest rate cuts could help support the housing market, although there is likely to be regional dispersion with house prices rising more slowly in areas like London where affordability is stretched.
“Affordability remains a challenge, with house prices still high relative to incomes. However, lower mortgage rates and steady wage growth have helped support buyer confidence,” said Amanda Bryden, head of mortgages at Halifax.
Regional house price variations
Naturally, there are regional variations when it comes to house price growth.
Among the UK nations, prices are growing at the fastest rate in Northern Ireland (9.5% annually), according to the latest report from HM Land Registry. Scotland comes in second (5.8%), followed by Wales (5.3%) and England (3%).
Of the English regions, the North East is experiencing the fastest growth (6.4%). The South West saw the lowest level at 0.9%.
Using the “house prices in your area” report from the Office for National Statistics can help you understand how prices have changed in your borough or local authority area.
A recent special report from Nationwide also found that rural areas have outpaced urban areas in recent years. Between December 2019 and December 2024, house prices in predominantly rural areas increased by 23%, compared with 18% in areas that are largely urban.
“The pandemic had a significant impact on housing demand during 2021 and 2022, with a shift in preferences towards more rural areas, particularly amongst older age groups. Whilst these effects have now faded, less urban areas have continued to hold the edge in terms of house price growth,” said Robert Gardner, chief economist at Nationwide.
But as Zoopla highlights, a glut of supply is limiting price growth.
Are property asking prices going up?
Asking prices are a useful barometer for market sentiment as it currently stands. These snapshots tend to be published only a few weeks after the data was recorded. The drawback is that asking prices don’t necessarily reflect the final sold price.
Rightmove data shows asking prices dropped by 0.3% in the first few weeks of June – an unusual dip for this time of year – as new sellers lowered their price expectations against a competitive market backdrop.
London and other expensive southern regions saw the largest price drops, according to the property listing site. They are more exposed to stamp duty changes and have seen bigger increases in the number of homes for sale.
“It’s an encouraging market for those looking to buy, with a very good choice of homes for sale, which also means they have good negotiating power,” said Colleen Babcock, property expert at Rightmove.
“Some buyers with a home to sell in the current high-supply market may achieve a lower price on their own sale, but could look to offset that by negotiating a comparable discount on their purchase.”
Will house prices rise in 2025?
Despite an uncertain economic backdrop, experts are cautiously optimistic about the property market going forward. Real estate consultancy Knight Frank recently upgraded its forecast from 2.5% to 3.5% for annual house price growth in 2025. Savills is predicting 4%.
Bill added: “We think there will be modest single-digit house price growth by the end of the year but if you are planning to sell over the next few months, asking prices will need to reflect the fact it is very much a buyers’ market.”
Regional variations are likely, with prices forecast to rise more rapidly in the north than the south. Savills expects growth of 5% in the North West, the North East, Scotland, and Yorkshire and the Humber. Prices in the East of England and the South West are forecast to increase by 2.5%. This divergence can largely be explained by affordability.
“Housing market activity and house price inflation are currently strongest in areas where homes are more affordable. In broad terms, this covers most areas outside the southern regions of England,” said Richard Donnell, executive director of research at Zoopla.
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Katie has a background in investment writing and is interested in everything to do with personal finance, politics, and investing. She enjoys translating complex topics into easy-to-understand stories to help people make the most of their money.
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Before joining the MoneyWeek team, Katie worked as an investment writer at Invesco, a global asset management firm. She joined the company as a graduate in 2019. While there, she wrote about the global economy, bond markets, alternative investments and UK equities.
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