Looking Ahead to 2025, interest rates will remain a key factor shaping the property market. While we anticipate a gradual decline, we don't expect the Bank of England to lower rates as sharply as initially predicted.
By the end of 2025, we expect rates to stabilize between 4% and 4.5%, offering relief to buyers and investors and spurring market activity in the second half of the year.
With 2024 laying the groundwork for stabilization, 2025 is expected to see price growth. Improved affordability and sustained demand are likely to drive steady price increases. Savills forecasts a 23.4% average growth over the next five years, building confidence for investors.
Regional cities and commuter towns should continue to outperform, with price increases in the range of 4-6%.
Investors will benefit from identifying areas of regeneration poised to exceed market averages. Secondary towns with good transport links and ongoing regeneration plans will be particularly attractive.
Improved affordability is likely to draw first-time buyers back into the market, who were previously priced out.
Meanwhile, retail investors will continue to focus on rental yields and growth potential, making regional cities and towns appealing investment destinations.
Key trends and challenges in interest rates, housing supply, and policy reforms will shape the opportunities for investors, homeowners, and developers. Here’s my in-depth look at the predictions and opportunities for the year ahead.
The Role of Politics and Interest Rates
One pressing question is the trajectory of interest rates, influenced by the national policy and by the broader economic climate. The current economic landscape, still reeling from the aftermath of recent budgets and facing potential inflationary pressures, suggests that significant reductions in interest rates are unlikely in the near term.
This scenario has ripple effects on affordability and mortgage repayments, with approximately 1.5 million homeowners expected to transition from fixed-rate mortgages to higher rates within the next 18 months.
The general housing market is predicted to remain relatively flat in 2025. While there has been some speculation about modest growth, 3% increases in certain areas this year, recent data shows a slight decline of 1.7% in prices last month.
Although the volume of property transactions may see a modest uptick, overall property values are expected to stay stagnant. Affordability concerns, combined with high borrowing costs, will likely to temper growth in housing prices.
Large house builders have struggled to meet the demand for new homes, producing fewer than 200,000 homes this year, well below the current government targets. While there may be a slight increase in activity next year, it is unlikely to match the ambitious levels desired by the Labour party.
Government-backed initiatives, such as a potential 5% deposit guarantee for first-time buyers, could bolster demand. However, the timeline and pathway for implementing these measures remains unclear.
Landlords and buy-to-let investors are bracing for continued challenges in 2025. The Renters Reform Bill, expected to become law by mid-year, will introduce further regulation, prompting some landlords to exit the market. Combined with higher refinancing costs due to elevated interest rates, the rental market may experience reduced housing stock.
On the upside, rental income is projected to increase by approximately 10% in response to heightened demand and limited supply, offering some relief to remaining landlords.
Small developers will continue to navigate a challenging market characterised by rising construction costs and stagnant sale prices. However, as we mentioned earlier the potential introduction of a 5% deposit guarantee for first-time buyers could provide a significant boost to this segment when it comes.
Additionally, opportunities may arise from distressed property sales, as financial pressures force some to offload assets, creating potential bargains for the savvy developer.
The auction market, often regarded as a barometer for the broader property sector, has shown surprising resilience over the past year. Despite an influx of landlord-owned properties, demand has remained robust.
Properties priced over £1 million, however, may face difficulties. Nevertheless, the auction market is expected to remain an important avenue for buying and selling properties in 2025.
While 2025 is shaping up to be a challenging year, it will also present its share of opportunities. As some players exit the market, those who remain agile and informed will have the chance to capitalize on evolving conditions.
Rightmove
Rightmove predicts average asking prices will rise by 4% in 2025 but it will be a buyers market with purchasers “spoilt for choice”. In its annual forecast, the portal says its 4% prediction is its largest since 2021.
The average number of available homes per estate agent branch is at its highest for this time of year in 10 years, so while the number of buyers in the market is significantly higher than this time last year, Rightmove claims they’re often spoilt for choice.
It expects the number of homes for sale to remain high next year, which will likely prevent higher price growth. However, these factors will also help agreed sales, and Rightmove anticipates a higher number of transactions in 2025 of around 1.15m in total.
Rightmove predicts that the average five-year fixed and two-year fixed mortgage rate, are likely to be around 4% by the end of next year, based on current market trends.
This is lower than the current 4.83% and 5.08% for the five-year and two-year fixed rates respectively and it will help improve affordability and further boost consumer confidence. It says “there may be room for rates to come down a bit more in 2026, but we will not see a return to the historically low rates seen prior to the cost-of-living crisis. The future path of mortgage rates, even in 2025, is difficult to forecast as they are greatly dependent on the impact of a wide variety of unpredictable factors, including geo-political tensions and inflation.”
During this period two-year fixed rate mortgages are likely to become even more popular as the gap closes with five-year fixed rates, and it becomes less attractive to fix for longer. Two-year fixed rates have been the more expensive option over the last couple of years, but the gap is currently the smallest it’s been this year.
In terms of first time buyers, Rightmove says the April 2025 stamp duty change – reverting to higher costs for many FTBs – will pull forward some planned moves. But it adds that in many areas of England there is still a high availability of homes that would fall under the £300,000 threshold for first-time buyers.
The number of first-time buyers that are active in the market and sending enquiries to agents is 13% ahead of the same period last year. With buyer affordability continuing to improve next year, and rents still rising, Rightmove predicts it will be an active year for this market sector. And finally the portal’s latest looks at London, which it believes will see a resurgence in 2025.
Compared with five years ago, the average asking price for a home in London is up by 12%, whilst for Britain as a whole, asking prices are up by 21%.
In 2019, the price of a home in London was more than double (+101%) the Great Britain average, whereas now, the gap has reduced to 86%.
The Brexit year of 2019 and the subsequent Covid influenced years saw slower price growth for the London sales market. In 2019, average asking prices fell in London by 0.5%, compared to a 0.8% rise across the UK as a whole.
However, Rightmove anticipates that 2025 could be the beginning of the price turning point for the London market, with the fundamental pull of the capital for both workers and international buyers predicted to start to reassert itself, helped by some major companies heading back to the office five days a week.
Rightmove expects London price growth to be in-line, if not marginally ahead, of national price rises.
Zoopla
Zoopla: UK still a buyers’ market The portal said “it remains a buyer’s market and signs of increased caution amongst home buyers will keep UK house price growth in check over 2025.”
As it stands house price growth stands at a modest 1.9%, bringing typical prices to £267,500 in November. Buyers and sellers returned to the market in 2024 having delayed moving decisions in the face of higher mortgage rates.
More homes for sale have boosted choice, while sales have grown year-on-year.
In the last four weeks sales agreed rose by 23% year-on-year, as buyers try to agree deals ahead of lower stamp duty thresholds in April 2025.
North-south divide set to continue in 2025
In 2025 Zoopla predicts low house price growth in the South, and higher growth in the North, averaging at 2.5% for the UK as a whole. Since 2010 house prices in London have risen by 83%, followed by 70% across southern regions of England, 66% across the Midlands and 56% in Wales.
At the other end of the spectrum average house prices are just 19% higher in Northern Ireland, 30% higher in Scotland and 41% higher in northern regions of England, providing room for house price growth.
Richard Donnell, executive director at Zoopla, said “buyers and sellers returned to the housing market in 2024 having delayed moves in the face of higher mortgage rates. There is a sizable pipeline of sales that will complete in the first half of 2025 with many hoping to avoid higher stamp duty costs from next April.
More sales have supported a return to house price growth across the country but home buyers have become more price-sensitive in recent weeks as mortgage rates drift higher. Affordability constraints will keep the pace of house price growth in check over 2025 but there will be enough price inflation to support 5% more home moves.”
Summary
While the Budget was mixed news for professional property investors, a long-term reduction in interest rates would go some way to balance the detrimental effect, making debt cheaper and more accessible, allowing landlords to expand their portfolios, and lenders will show more forbearance towards those at risk of defaulting on their loans.