2025 UK Property Insights: Will the Housing Crisis Continue?

As we approach 2025, the UK property market finds itself at a crossroads. With landlords selling off properties in record numbers and grappling with rising costs, many wonder if the new year will bring relief or further challenges. Here, we explore the key trends shaping the property landscape and what they mean for buyers, landlords, and renters alike.

2024 in Review: Signs of Recovery

According to Zoopla, house prices rose by 1.5% over the past year, marking a return to growth after a 1.2% decline in 2023. While this is a positive shift, it still falls short of the 7.2% growth seen in 2022. Looking ahead, several factors could influence the trajectory of the market in 2025:

• Mortgage Rates: Rates have stabilised, with most buyers securing deals between 4% and 5%. Experts predict a gradual reduction of 0.25% per quarter in 2025, offering hope for improved affordability.

• Household Incomes: The Office for National Statistics reports that household incomes have grown by 9–12% over the past two years, boosting buyers' budgets and confidence.

• Stamp Duty Changes: 2024 is set to end strongly as buyers rush to complete transactions before higher stamp duty rates return in April 2025. Thresholds will revert, significantly increasing costs for many buyers.

The Rental Market: Under Pressure

With nearly one million people migrating to the UK in 2023, demand for rental properties has soared. Migrants are more likely to rent, with lower homeownership rates compared to UK-born residents. This trend is expected to continue, placing additional strain on an already undersupplied rental market.

The Housing Shortfall: A Persistent Issue

Labour’s pledge to build 1.5 million homes faces significant obstacles, including labour shortages, planning delays, and rising construction costs. Housing Minister Matthew Pennycook has acknowledged the difficulties, stating, “Delivering 1.5 million homes is going to be more difficult than we expected in opposition.”

Meanwhile, the UK remains 4.3 million homes short of what’s needed, perpetuating affordability issues.

Are Homes Overvalued?

In 2023, homes were 16% overvalued due to higher mortgage rates. However, Zoopla’s analysis suggests that the market has corrected without significant price falls. For 2025, house prices are expected to remain undervalued, assuming an average mortgage rate of 4.25%, 2.5% house price growth, and 4.6% income growth. Over the next three years, prices are projected to rise by 7.5%.

The North-South Divide

Regional disparities in house price growth persist:

• Northern England and Midlands: Prices are rising above average, with towns like Oldham and Wigan seeing gains of 3.7% and 3.9%, respectively.

• Southern England: Affordability pressures have led to underperformance, with some areas like Ipswich and Dartford experiencing price declines.

Predictions for 2025

• Zoopla: 2.5% annual increase in property prices.

• Savills: 3.5% growth.

• Knight Frank: 2% growth.

With a range of positive indicators, including stabilising mortgage rates and rising incomes, 2025 could see a more dynamic property market. However, challenges such as rental demand pressures and housing supply shortages remain.

What Are Your Thoughts?

Will 2025 be the year the UK property market finds its footing, or are there more challenges ahead?