RICS: Housing market continues to strengthen but 2025 could be challenging

The housing market continues to strengthen, with rising buyer demand, according to the latest Royal Institution of Chartered Surveyors (RICS) survey.

House prices increased in November for the fourth consecutive month, while new buyer enquiries maintained positive momentum.

Last week, Halifax said average UK house prices had hit a record high of £298,083. Meanwhile, Nationwide reported 3.7% annual growth in November, and said house prices had risen at their fastest rate in two years.

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The RICS survey, which polls estate agents and other property professionals, recorded a net balance of +12% in new buyer enquiries in November, which was largely unchanged from the previous month and highlighted “a modest but sustained recovery in buyer demand”.

Respondents expect house prices to continue rising over the next three and 12 months, reflecting a “robust outlook for the year ahead”.

Supply-side trends were also positive, with new instructions rising for the fifth consecutive month, as evidenced by a net balance of +17% in the RICS survey.

However, agreed sales volumes remained broadly flat, with a net balance of +1% compared to +8% last time round.

Tarrant Parsons, RICS senior economist, comments: “Although the latest survey results continue to signal a steady improvement in buyer demand across the residential market, the broader macro environment is likely to pose additional headwinds moving forward.

“Most significantly, the recent rise in mortgage interest rates may curtail the recovery in market activity before long, and this is reflected in the slightly less optimistic sales expectations data coming through this month.”

What’s the housing market outlook for 2025?

While the housing market has strengthened since this summer, there are signs that things are starting to slow down - and there could be several headwinds going into 2025.

Firstly, looking at the RICS survey, sales volumes have started to dampen. While a net balance of 19% of respondents anticipate an increase in sales activity over the next three months, this figure is lower than October’s reading.

Market appraisals in November were also on par with levels seen a year ago, “which could signal a potential slowdown in the pipeline of new listings as we move into 2025”, said RICS.

Parsons points to the fact that “measures of consumer and business confidence across the economy have deteriorated of late”. If this continues “this could begin to feed through into housing market conditions in the months ahead”.

While interest rates are forecast to fall next year, some mortgage rates have risen since the Autumn Budget - and depending on swap rate movements, mortgage deals could become more expensive again next year.

Another headwind is the stamp duty hike next April, when Labour will end the temporary increase to the stamp duty thresholds.

Tom Bill, head of UK residential research at Knight Frank, comments: “Current UK housing market data feels somewhat artificial. Demand is being boosted by sub-4% mortgage deals that are no longer available and some buyers are acting ahead of a stamp duty hike in April.

“Following the increase in government spending announced in the Budget, we recently revised down our UK house price forecasts to reflect the risk that inflation and mortgage rates will stay higher for longer. House price growth and transaction activity will feel more sustainable once the economy is heading decisively in the right direction.”

Knight Frank predicts that house prices will rise by 2.5% next year, and 3% in 2026.

What about the rental market?

Looking across to the lettings market, tenant demand declined slightly in November, with a net balance of –1%, marking the first decline since 2020, according to RICS. However, this could be due to seasonal factors.

Meanwhile, landlord instructions continued to fall, with a net balance of –13%, contributing to the ongoing imbalance between supply and demand in the rental sector. Despite the slower demand, rental prices are forecast to edge higher, with a net balance of +29% of respondents expecting increases in the near term.

According to Zoopla, average annual UK rents have jumped £3,240 since Covid. It said rental costs have risen 27% since 2021, far outstripping wages over that period.