They say it's a time for new beginnings, but so far this year feels different. The market is still grappling with the impact of the Budget back in October, which was poorly received by financial markets and businesses alike.
The abolition of non-dom status and changes to agricultural property relief received a big thumbs down. As did increased Employer National Insurance, set to hit from this April. Several large employers have already warned this could see them cut jobs. Job insecurity is likely to directly affect sentiment in the property market across the spectrum. Yet, there were some positives in the Budget. Inheritance Tax was not increased, as many forecast, for the wider population. Increases to Capital Gains Tax do not apply to property.
As we go further into 2025, there has been some cause for optimism. Inflation seems to be under control at last. From an all time high of 11% in late 2022 it appears to be settling above the Bank of England’s 2% target. With the latest December 2024 figure at 2.5% and with economists predicting a slight increase to 2.8% for January’s rate (at time of writing), Capital Economics forecast that inflation could be under 2% by this time next year.
"According to Morgan Stanley the bank rate may drop to 3.5% before 2025 is out."
Of course this is good news for the property market as it means interest rates are firmly on a downswing. Many experts have been forecasting a 0.5-0.75% cut across this year. But the latest Morgan Stanley forecast goes much further: They forecast bank rate will drop to 3.5% before 2025 is out – which could equate to five rate cuts this year. Capital Economics are predicting a similar outcome.
Indeed, potential buyers and sellers themselves seem to be cautiously optimistic. Rightmove say 2024 saw the biggest ever ‘Boxing Day bounce’, with record site traffic and a 26% increase in listings compared to 2023. Zoopla say buyer demand is tracking 14% ahead of this time last year.
Looking ahead, what other factors are likely to affect the market as we move further into 2025?
In response to the outcry, the phasing out of non-dom tax concessions has been softened – ever so slightly. Many will argue the damage has been done, however. A message has clearly been sent that the UK no longer welcomes the wealthy, and many have already shipped out.
“Stamp Duty changes may trigger a buying rush, followed by uncertainty, price dips, and market fluctuations.”
A key issue is likely to be the ending of Stamp Duty concessions (in England) on 31 March, which will make buying even more expensive. It will particularly impact the all-important first time buyer. For example someone buying an average-priced London home at £525,000 will see their Stamp Duty bill rise from £5,000 now to around £16,250 in April. An increase of 225%.
In all likelihood there will be a rush of completions until March 31 followed by a hiatus later in the spring. A survey of agents by GetAgent says that almost half (47%) believe the market will see a drop transactions after March, and 45% feel house prices could dip. At the very least this change is likely to distort price stats for the next few months.
Proposals by the FCA for ‘simplifying responsible lending and advice rules for mortgages’ could boost mortgage lending. They could stimulate the market and have some impact on prices.
Lastly, let’s end where we started – with Budgets. Officially there won’t be a Spring Budget 2025 this year – but there will be a Spring Forecast, on 26 March. Some will wonder if the Chancellor’s definition of a forecast might stretch to further tax changes.
in early 2025, house prices are
stable on a national basis. The Nationwide HPI says that house prices nationally rose by 4.7% in 2024. The Halifax HPI says 3.3%. These are fairly modest levels compared to recent years. They do at least mean property values are ahead of the (current) rate of inflation.
Looking ahead, Halifax seem unwilling to commit to a 2025 forecast, suggesting merely ‘modest house price growth this year’. Perhaps not wanting to be caught with egg on their faces, Nationwide forecast prices will rise on average between 2% and 4% in 2025.
Of course, national price stats can hide regional differences – a moral if ever there was one for taking local advice when buying or selling.
In particular, a given over the last few decades has been that where London leads, regional markets follow. But it may not be safe to rely on this maxim in future. Zoopla says that Scotland and northern England have the best prospects for house price growth in 2025, while inner London and southern England sit at the other end of the rankings.
Of all the sub-markets, prime central London is perhaps most likely to be impacted by the ‘wealth not welcome’ subtext to
the Budget. Some of the stats make uncomfortable reading. With one ‘millionaire’ leaving the UK every 49 minutes in 2024, according to one report. It also appears that this trend is moving down the pay brackets as those affected by the cost of living crisis also ship out to lower tax regimes such as the UAE, Switzerland, Italy and even the United States.
In 2024 super-prime property sales (properties selling for £15m+) dropped 25% by volume and 34% by value, down to a five year low according to Beauchamp Estates. According to PrimeResi, prime prices have fallen 20% since 2014, ranging from -9.6% in Bayswater to -26.3% in Earls Court. Another corporate estate agency described the last ten years as a ‘lost decade’ for this market.
“Prime Central London prices will see a 21.6% cumulative rise by 2029 – ahead of the wider London at 15.3%.”
Of course, London living is also about lifestyle and not just money. Some affluent ‘refugees’ who depart the UK might find that the grass isn’t greener in, for example, Dubai. Some commentators suggest that prime prices are now at a level where they are starting to look attractive.
Looking ahead, longer term forecasts for this sector are mixed. Knight Frank forecast that PCL prices will see a 21.6% cumulative rise by 2029 – ahead of the wider London (15.3%) and wider UK market (19.3%). However Savills forecast just 9.4% growth in prime London prices (23.4% in the mainstream market) over the same timeframe.
That London property prices will always rise faster than elsewhere has generally been a given over the last few decades. Covid, however, signalled something of a shift change. That could be due to buyers seeking out more space, and better value, away from London. Lloyds Bank data shows that, nationally, property prices rose by 20.4% between 2020-2022. Yet in London the rise was as low as 3.8%. In 2024 seven London boroughs actually recorded price falls, in the order of 3-4%, and led by Ealing with a 4.9% fall, according to Halifax HPI figures.
While longer term forecasts are by no means negative they suggest future London price rises will be more moderate than elsewhere.
As rising prices and mortgage rates have stretched affordability – and working from home has made commutability less essential – one report suggests 2024 was a testing year for this sector. Investec says that in these locations, sales prices for properties over £1m declined by 9% or circa £150,000 on average last year. It claims that it was also the slowest sector of the market, with houses taking 121 days on average to sell. It claims that Kent was hardest hit, followed by Berkshire, with Hertfordshire escaping more likely.
Looking ahead, another forecasts suggests these ‘outer commute’ areas will underperform almost every other sector over the next five years. With a forecast of just a 2% rise in 2025 (UK 4%) and just 15.9% over five years (UK 23.4%). It is, however, perhaps far too early to assume the demise of this ever-popular market. With proximity to capital and country the home counties have enduring appeal. Competitive pricing and falling mortgage rates in 2025 could see affordability restored.
This is a diverse market and buyers may have very different reasons for buying. Their purchase may be a lifestyle choice. It may be driven by the demand for more space, or to seek out better value than in London. It may be a second home. Some of these properties
may be effectively agricultural properties. It is a perfect example of a market where local, expert
advice is absolutely essential.
" Rental reform dominates 2025 as landlord confidence rises, yields improve, but market uncertainty challenges stability."
After enjoying impressive rates of price growth during Covid, peaking at 9.4% pa at the end of 2021 (Savills figures), values in this sector declined gradually as the pandemic faded. In late 2023 they declined circa 5% pa, when the wider market was still appreciating. Prices in this sector suffered further small declines in the light of the autumn 2024 Budget.
A corner may have been turned in this market. The prime regional housing markets seem to continue a slow march to recovery. Whilst suburban and northern markets have proved the most resilient of all, and as you would expect second home hotspots have remained somewhat more price sensitive.
The big story of 2025 will most certainly be rental reform in England. After the Conservatives’ Renters (Reform) Bill collapsed it is now almost certain that Labour’s on-steroids version, the Renter’s Rights Bill, will become law. This is likely to happen within the next few months.
Reports that this impending new legislation has led landlords to exit the market are numerous. The last English Private Landlord Survey suggested that 30% of private landlords were planning on selling some or all of their properties. However, the optimistic will argue that there are still very good reasons for being a landlord in the UK, or even expanding a portfolio. Shortage of supply has pushed up rents and improved yields over the last few years.
The HomeLet Rental Index now puts the average UK rent at £1,284 pcm, a 1.8% rise over the year. In London it is £2,071 pcm, a 2.6% fall over the year.
Paragon Bank put average landlord yields nationally at 6.72%. Again, it is the regions where the numbers look more favourable. Paragon say London yields are the lowest in the country at 5.52%. Top of the charts are the north east and Cumbria (8.02% yield) and Wales (7.95% yield).
Meanwhile latest Landlord Trends report from Pegasus Insight (Q4 2024) suggests landlord confidence has increased slightly year-on-year, with 37% saying they feel ‘good’ or ‘very good’ about their prospects compared to 33% in Q4 2023.
Oddly, the uncertain nature of the prime London sales market could be benefitting the prime rental market. The Beauchamp Estates’ Prime Central London Lettings Survey 2024 reports that this market is ‘highly resilient’ with ‘the super-luxury and short-term rental sectors booming’. They add that the market is being driven by wealthy American, European and Chinese tenants.
‘London has bounced back as the buy to let capital of the UK’. It saw 13% growth in new landlords in 2023-2024 – more than anywhere else.
The wider London lettings market has long been at boiling point. Tenant affordability has been tested across most if not all boroughs over the last few years. Interestingly, despite high capital values, landlords’ interest in this market appears to be strengthening. A report by Simply Business says that ‘London has bounced back as the buy to let capital of the UK’. It saw 13% growth in new landlords in 2023-2024 – more than anywhere else.
Spring is traditionally a time of year when the property market starts to warm up. It will be interesting to see what happens to the rental market as the year progresses.
There is certainly a lot going on that could affect the market this spring. Particular things to look out for include the progress of interest rate cuts, any further tax announcements by the Chancellor and the impact of the Stamp Duty changes in April. And, most important of all of course, how buyers and sellers react.
While the market does face some challenges this year there are still very good reasons to be optimistic about the property market in 2025.
Taken from our Spring issue of the Moveli magazine. Read the full edition here.
For expert advice on your local market dynamics please contact one of our Moveli brokers who on average have over 18 years experience.
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