What to Expect from the Residential Property Market in 2025

Steady Growth in Mainstream House Prices 

The UK housing market is expected to see a significant turnaround in 2025, with average house prices projected to increase by 4%. This growth, both in nominal and real terms, is being driven by improved buyer confidence as mortgage rates continue to decline. Lower monthly repayments have already begun to stimulate modest price growth, a trend anticipated to strengthen in the months ahead. 

"With UK house prices on the rise, buyers can benefit from competitive mortgage rates and a recovering market." 

Another key factor is the reduced prevalence of homeworking. The shift back to commuting is spurring demand in locations close to major employment hubs, particularly London, which has outperformed other regions over the past year. However, areas like the South West and East of England may see slower growth as the "race for space" trend continues to unwind. 

Prime Housing Market to Recover Slowly 

Unlike previous housing recoveries where the prime market typically rebounds first, this time high-end properties are likely to lag behind. Changes to the tax system, including additional stamp duty on second homes, the abolition of "non-dom" tax status, and VAT on school fees, are expected to dampen demand in the upper tiers of the market, even as interest rates decrease. 

In prime central London, these factors are projected to lead to modest price declines in 2025. However, prime regional markets are positioned for stronger growth as families look for homes that balance affordability, commuting ease, and access to good schools. 

"Prime regional markets are becoming a key focus for property investors seeking value outside of London." 

Rentals to Remain in High Demand Amid Limited Supply 

The UK rental market is poised for another challenging year as high demand and limited supply continue to drive up prices. Nationally, rents are forecast to increase by 4.0%, outpacing income growth, as the market struggles to keep pace with tenant demand. 

"With rental demand outstripping supply, the UK property market offers lucrative opportunities for landlords and investors in 2025." 

In London, slower rental growth in 2024 has slightly eased affordability pressures. This trend is expected to persist, with rental growth in the capital projected at 2.5% for 2025, just below the forecasted income growth of 2.9%. Meanwhile, rental markets in the North are expected to accelerate, offering opportunities in more affordable regions where tenants face less financial strain. 

Recovery in Buyer Activity Will Be Uneven 

Transaction volumes are expected to rise in 2025, but recovery will vary across different buyer groups. First-time buyers are likely to dominate the early part of the year, rushing to complete purchases before the end of stamp duty concessions in March. Mortgaged home movers, many of whom delayed transactions due to high borrowing costs, are also expected to return. This initial wave will likely consist of needs-based buyers, with broader activity following as mortgage rates drop further. 

"First-time buyers will lead the charge in 2025, driven by stamp duty deadlines and improved mortgage affordability." 

Meanwhile, cash buyers, who accounted for over 40% of transactions in recent years, are expected to see their market share drop closer to the long-term average of 35%. As mortgaged buyers re-enter the market, opportunistic cash buyers will face stiffer competition, reshaping the dynamics of the property sector. 

The resurgence of mortgaged buyers is set to balance the UK housing market, reducing the dominance of cash transactions.