Residential sales

2025 could be a pivotal year in the UK residential sales market, particularly in comparison to the last few years. Several key economic trends are likely to influence the direction of the market.

Firstly, as interest rates are expected to continue to decline the cost of borrowing will become more affordable for homebuyers and homeowners looking to re-mortgage. This reduction in interest rates (we expect Bank Rate reach circa 3.75%-4.0% by the end of 2025) and resulting lower mortgage rates should unlock some strong demand.

Secondly, there is a wider improving economic picture with rising earnings in real terms, which will further influence the sales market. Wages have been outpacing house price growth for around a year now and this is expected to continue well into 2025, meaning affordability constraints will further ease, enabling more individuals to enter the market. This increased affordability, together with pent-up demand from recent market inactivity will bolster sales activity particularly in the mortgage market.

However, it is important to note that the nil-rate stamp duty thresholds for England and Northern Ireland will revert to their previous levels on 1 April 2025. This change could lead to a spike in activity during February and March as buyers rush to complete transactions before the deadline. However, the effect may not be as pronounced as in previous years as the change has been known for some time. Nevertheless, it will still contribute to some market volatility during this period.

As a result of the positive factors that are expected to lead to a rise in demand, house prices will experience modest growth in 2025. We anticipate a UK-wide average of 2.5% growth by the end of the year although regional variations will of course exist. Prime central London and other high-value, urban locations may see more subdued growth due to affordability pressures. The recent increase to stamp duty on additional homes (for buy to let investors or second homeowners) may see this side of the market experience a slight fall in demand although again, we don’t expect the impact to be too severe.

Overall, we expect that the combination of falling interest rates, improving affordability and rising demand will boost the UK residential sales market in 2025. The pace of price growth and activity will vary by region, but the overall outlook remains positive. Although the upcoming stamp duty changes will introduce some activity fluctuations, we don’t anticipate that this will make a major impact on the market as a whole.

Table: Annual house price growth forecast, by country / region (% year on year)

Source: Oxford Economics, Carter Jonas Research