Where will house prices rise the most in 2025?
Pricing for dearer household items, such as food and fuel, are predicted to increase across the UK in the coming year - although the extent of the rises are expected to vary by region.
There's expected to be an increase in homebuyer demand this year, as predicted interest rate reductions are likely to lead to more competitive mortgage rates. This, paired with the absence of a general election, will support the market.
Whilst demand has reduced, there's still existing stress on the market.
In order to keep their property tax bills low, they let it fall.
Moreover, there are worries that the tax increases announced by Chancellor Rachel Reeves in the Autumn Budget, including rises in national insurance rates for employers, might harm consumer confidence if shop prices increase and if there are reductions in employment or pay freezes.
Following the Budget, gilt yields have risen, potentially exacerbating expectations that interest rates will remain high for a longer period, ultimately putting downward pressure on house prices by curtailing buyer demand.
Predictions for the rate at which house prices will rise vary between 2.5 per cent and four per cent. However, these forecasted figures represent averages for the whole country, and the problem is that hardly anyone resides in a typical, run-of-the-mill house.
The United Kingdom consists of numerous separate markets, each with its own unique influences affecting supply and demand, thereby impacting prices.
Savills is predicting a 4 per cent increase in UK house prices for the current year, however they have forecast a 4 per cent drop in prime central London due to the introduction of higher stamp duty rates and the cessation of non-dom status which could discourage overseas buyers.
Lucian Cook, leader of residential research at Savills, points out: “In a typical housing market recovery, we would normally expect the highest-end of the market to bounce back first, showing the fastest improvement following a shift in people's outlook on buying and selling properties.”
“However, the extra tax charged on second homes, changes to taxes for individuals not liable to pay UK income tax in their country of residence, and Value-Added Tax on school fees will partially counterbalance some of the effects of any future interest rate reductions on the housing market this time.”
Here are the locations where house prices are expected to increase next year.
London
Despite mounting challenges in the heart of London, estate agents remain optimistic that the outer regions will experience a reasonable increase in property prices.
Hamptons, which is forecasting a three per cent average increase in house prices across Britain, expects London to be a leading performer, with a four per cent rise predicted.
Aneisha Beveridge, head of research at Hamptons, pointed out: "2025 is forecast to be the spearhead of a fresh housing cycle, with London projected to shoot ahead of the rest of the nation."
Contrastingly, areas beyond prime central London are predicted to be the strongest performers, unlike the start of previous cycles in 2008 and 1994. The recovery in prime central London is likely to be hindered as buyers and sellers adapt to the revised tax regulations.
North-south divide
Price prediction forecaster Zoopla has expressed a differing opinion regarding the prospects for house price growth.
They've evaluated the affordability of homes by comparing local pay and prices, the speed at which properties are selling, the extent to which asking prices are being lowered to attract interest, and the number of homes that remain unsold for over six months. They've done this to identify which areas in the UK are likely to see the greatest growth in 2025.
It has been discovered that house prices in Scotland are amongst the lowest in the UK in relation to incomes, and properties are generally being sold more swiftly due to differences in the home buying process.
Motherwell is currently experiencing the fastest house price inflation in the country with a growth rate of 3.8 percent, trailed by Falkirk with 3.5 percent, significantly outpacing the 2.6 percent average for Scotland overall.
The Eastern regions of England, as specified by Zoopla, will have the most promising prospects for house price growth in 2025 in the England.
This is because the average house prices in these areas are already relatively low, meaning that buyers aren't going to be hit as badly by higher mortgage rates compared to those in the south of the country, the research suggests. Zoopla forecasts a five percent annual increase in house prices in Wigan, a three percent increase in Stoke-on-Trent and a 2.1 percent rise in Newcastle.
On the other hand, it's forecast that price growth in most of the south will be less than two per cent, and could even decline in areas like Torquay, where Zoopla believes a drop in remote working and changes in tax rules for second homes are to blame, with these areas perhaps even suffering a price slump.
Zoopla has predicted an average growth rate of 2.5 per cent across the UK for the year.
Richard Donnell, executive director at Zoopla, stated: "Increased earnings and reduced mortgage rates have accelerated housing affordability recovery sooner than anticipated in 2024. This has led to an increase in sales and property prices, with predictions that this trend will persist into 2025."
Housing price growth in southern England is likely to remain slower than the UK-wide average. Furthermore, incomes in the region need to rise at a greater rate than housing prices to improve affordability and make the market more accessible to more households.
External factors
Other factors, including the effects of trade tariffs pledged by the new US President Donald Trump and the ongoing repercussions of the UK's Autumn Budget, will also play a significant role in the market.
Predicting house price growth can sometimes be challenging.
Estate agency brand Knight Frank adjusted its projection for the end of 2024 at the close of last year, a year before the initial date, necessitated by the Budget.
It has forecast an average UK house price growth of 2.5% in 2025, then 3% in 2026, and 3.5% in 2027, compared with its earlier prediction of 3%, 4%, and 5% respectively.
Some buyers are in a tricky situation as they accepted mortgage offers before the Autumn Budget, which might turn out to be more cost-effective, but house prices might remain high during the first quarter of 2025 due to people rushing to purchase before the stamp duty deadline.
The stamp duty bubble is keeping estate agents optimistic on the terms of current conditions.
The Chief Executive of The Guild of Property Professionals, Iain McKenzie, commented: "The property market is often described as resilient, and it's a term that fits, as it consistently challenges expectations."
Given that the market has started the year in a more robust state compared to twelve months ago, it is likely that prices will continue to rise, albeit at a modest pace, throughout the year, but it's crucial to maintain realistic expectations. Sales have been boosted by the stimulation provided by the recent announcements regarding stamp duty reform, motivating many to take the plunge before the alterations take effect in April.
With interest rates on mortgages still fairly high, a lot of people will be looking to the Bank of England to see if there'll be a reduction at their meeting in February. This could give a boost to market sentiment, which ideally will then lead to lower mortgage rates. A lot of people are predicting that there will be a series of interest rate reductions in 2025, but the exact timing will depend on how inflation develops.
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