Guy Robinson
Senior Director, Head of Residential Agency
From house prices to rental regulations: our housing market outlook for 2025.
2024 was nothing short of eventful, with two base rate cuts following 14 consecutive rises, Labour’s victory in the General Election, and the Autumn Budget nearly four months later. These key political events have set the scene for the months and years ahead.
Off the back of this clarity, and an improving economic picture, the housing market ended 2024 on a much stronger footing than when it started.
We’ve seen this momentum here at Strutt & Parker. The number of offers received from buyers in our Prime Central London offices in November was up 7% compared with the same month in 2023, while this figure peaked at 20% for our regional offices. Buyers are clearly returning to the housing market with clear intentions to transact.
Guy Robinson, Head of Residential Agency, says: “With no major macroeconomic or political events on the horizon this year, people will feel they can move forward with more certainty and make informed decisions. Once we see this increase in housing market activity, current house price growth forecasts may even look conservative.”
UK housing market activity to rise
Activity in the UK housing market is expected to pick up in 2025, fuelled by the end of the stamp duty break, as well as an anticipated easing in the base rate and mortgage rates. This will all encourage price growth, and we forecast mainstream UK and PCL property prices could increase by up to 5% this year.
Expiry of stamp duty holiday
The end of the stamp duty break is set to prompt a flurry of activity at the start of the year as buyers rush to get sales over the line before the 31 March deadline.
This activity will be focused on first-time buyers in more expensive areas of England. Just 8% of homes for sale in London will be stamp duty-free for first-time buyers from April, while this figure will be 24% in the South East and 32% in the East of England, according to Rightmove.
“Housing market activity traditionally picks up in the spring, but we’re expecting it to kick-off quicker than normal in the new year as buyers look avoid extra stamp duty charges,” says Kate Eales, Deputy Head of Residential Agency. “While this shift will largely be seen at the lower end of the housing market, these buyers underpin the market and it will have a knock-on effect, creating more momentum and confidence across the board. This in turn will encourage more movers to enter the housing market and transact.”
Declining rates
Improving debt affordability as the year progresses will unlock pent-up buyer demand and boost sales volumes further.
The Bank of England’s base rate is widely tipped to continue coming down during the year. Our colleagues at the bank BNP Paribas are forecasting it will reach 3.75% by the end of 2025, and at 3.5% as 2026 draws to a close.
This means mortgage rates will slowly decline throughout 2025. “The gradual fall in the base rate and mortgage rates will bolster buyer and seller confidence and fuel more moves,” says Matt Henderson, Residential Research. “This will particularly be the case in the mainstream parts of the housing market, driven by those movers who have been waiting in the wings for more stability and greater affordability.”
Changing dynamics in the rental market could also feed into sales activity this year. Continued rental growth may motivate some renters to get onto the housing ladder – if they can get the maths to add up, while ongoing pressures on landlords might lead some to sell up.
Prime central London continues to hold its ground
Momentum in the Prime Central London housing market in the second half of 2024 is expected to continue into this year.
Tax changes
The higher tax on second homes and plans to scrap non-dom tax status were confirmed in the Autumn Budget last year and will be especially relevant to the Prime Central London market. But James Gow, Head of London Residential Sales, believes that London’s continued desirability and resilience means many buyers, particularly those in the super-prime market, will absorb these changes and they will have little material impact on demand.
“The cost of buying in London has steadily crept up for almost a decade as a result of tax changes, and yet demand has remained resilient. London is a global capital city with an enduring appeal. Buying a home here offers an unrivalled lifestyle, as well as being a secure investment,” says James.
He points to the value of the pound, a lack of supply and a stable government which will all boost London’s appeal on the global stage this year.
“Following the Budget, the number of buyers registering with our London offices in November was up 9.5% on the same month in 2023. We expect this upward trend to continue in 2025, with many buyers progressing with plans after sitting on the sidelines for some time.”
Supply-demand imbalance to drive rental growth
The supply of rental homes will remain constrained in 2025 as landlords face higher costs and further regulation.
New legislation and higher costs
Legislation in the pipeline is expected to ratchet up pressure on landlords in 2025.
The Renters’ Rights Bill could kick in as early as the spring, which is set to contain a swathe of changes, including limiting rent increases to once a year and outlawing rental bidding. This could lead to some landlords setting optimistic rents on new lettings from the outset.
In the longer-term, proposals for all rental properties in England to have an Energy Performance Certificate (EPC) rating of C or above by 2030 are also on landlords’ radars. Nearly 3 million rental homes need to be improved to meet the government’s target, according to Rightmove. Landlords are likely to pass the costs of any upgrades onto tenants via rent.
Higher borrowing costs than just a few years ago and the 2% stamp duty hike on second homes are both also expected to take their toll on the number of new landlords entering the market.
Despite these challenges, the quantity of landlords selling up has dropped following its peak in the wake of taxation changes in 2020 – a time which saw landlords leaving the market at unprecedented rates. “Those remaining now are less likely to be accidental landlords and are better placed to withstand the further regulatory changes,” explains Anna Ambrose, National Head of Lettings.
Strong pool of demand
Strong rental demand is expected to continue in 2025, with home ownership remaining out of reach for many. Anna says: “The continued imbalance between supply and demand at a national level will keep an upward pressure on rents this year, although the speed of growth is expected to somewhat stabilise.” Perhaps unsurprisingly, rental growth in already expensive areas – such as London and the larger cities – is expected to lag behind the UK average, as we reach an affordability ceiling.
Despite shifting dynamics, buy-to-let remains a secure investment for landlords who can withstand the regulatory and financial pressures - particularly for those who can purchase without debt.
If you’re looking to move home next year, browse properties for sale or get in touch with one of our team here.