London’s housing market is tipped to go through a resurgence in 2025, according to a Rightmove property expert. Tim Bannister forecasts house prices across the capital to rise, “driven partly by some major companies mandating a return to permanent office working”.
The year ahead is expected to be a “buyer’s market” across the country with house hunters having more negotiating power and sales picking up, experts have predicted. But more bullish expectations for 2025 are also tinged with caution, with a key stamp duty discount set to end in the spring, and uncertainty hanging over the wider economy and the speed of future potential interest rate cuts.
Mr Bannister said: “We’re anticipating a stronger 2025, with higher price growth and more transactions than in 2024.” He continued: “The year ahead is not without some caution. We think 2025 will continue to be a buyer’s market, which could provide buyers with more negotiating power, given the number of available properties per estate agent is at a decade-high for this time of year.
“There’s less competition amongst buyers than during the pandemic markets, which could provide them with some breathing room to choose the right home at the right price. However, if the right property does come along, we wouldn’t advise waiting too long, as agents tell us that attractive homes, well-priced and in popular areas are still being snapped up quickly.
“Additionally, falling mortgage rates, which we expect to drop to around 4% by the end of the year, should improve affordability and sentiment.” He also said the picture could be mixed for homeowners who are due to remortgage in 2025.
The year ahead will be a ‘buyer’s market’ with sales increasing, experts predict
(Image: Steve Parsons/PA)
About 1.8 million fixed-rate mortgages are due to end in 2025, according to figures from UK Finance. Mr Bannister said: “On one hand, there will be people rolling off a five-year, fixed-rate agreed during the pandemic frenzy, and will likely be facing higher costs.
“On the other, there will be those who fixed for two years at the post-mini-budget peak, who come to the end of that deal and find themselves with lower costs.” He added that while “the outlook is positive for 2025 … there is some uncertainty about what happens when stamp duty rises from April 1, as well as ongoing geopolitical tensions and the trend of inflation.”
First time buyers set to ‘rush to beat end of stamp duty concessions in March’
Stamp duty applies in England and Northern Ireland, and a temporary “nil rate” band for first-time buyers, which is currently £425,000, is set to return to £300,000, from April 1. Lucian Cook, head of residential research at property firm Savills, said: “First-time buyer activity is expected to be front-loaded in 2025 as these buyers rush to beat the end (of) stamp duty concessions in March.”
He predicted that potential home movers who have previously been holding back due to a harsher mortgage rate environment will return. This is likely to be initially driven by needs-based buyers, with more movers returning as mortgage rates edge down, he suggested.
The proportion of cash buyers is also expected to drop back, he said, adding: “Opportunistic buyers that have benefited from the weaker market of the last two years will be squeezed out by increasing numbers of mortgaged owner-occupiers.” Mr Cook said: “The direction of mortgage rates has been key to buyer decisions over the past two years, and decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.”
Mr Cook also predicted the housing market could see “some residual impact of the unwinding of the race for space in 2025, bringing growth in the South West and East of England below that of the capital”. The race for space was seen during the coronavirus pandemic, when the housing market saw strong demand for properties located in more rural and coastal locations.
Mr Cook also said housing market activity in the prime sector could lag behind the wider market. He said: “In a normal housing market recovery, you would expect the top end of the market to recover first, responding quickest to a change in sentiment.
“However, the additional stamp duty surcharge for second homes, changes in non-doms taxation and VAT on school fees are likely to offset some of the impacts of future cuts in interest rates this time around, meaning that prime market activity will lag behind the mainstream. The markets of prime, central London are most directly affected … but, the outlook is somewhat brighter in the prime markets outside of London.
“Prime, regional markets, in particular, are likely to benefit from some displaced demand as families look to strike a balance between house prices, commutability, and access to schooling.”
Stamp duty changes to ‘particularly impact southern England’
Zoopla predicts that stamp duty changes will have a particular impact in southern England, where house prices are often higher. Banking and finance industry body UK Finance has said it expects to see a gradual improvement in mortgage affordability in 2025, feeding into market growth.
As interest rates tick down, it also expects mortgage arrears to fall. The number of customers falling behind on their mortgages looks to have peaked early in 2024 before falling back, according to the body. Lending to home buyers is forecast by UK Finance to increase to £148 billion in 2025, up by 10% compared with 2024.
But, while UK Finance is predicting a continued steady growth in both house purchase and remortgage lending as affordability improves, it does expect to see a fall in buy-to-let (BTL) lending in 2025. As the sector continues to adapt to meet cost and taxation challenges, UK Finance expects new BTL purchase lending to stand at £9 billion in 2025, down 7% compared with 2024.
Nationwide Building Society expects to see house prices increase by 2% to 4% in 2025. Halifax, meanwhile, has predicted modest house price growth in the range of 0% to 3%.
Property professionals’ body Propertymark said: “It remains paramount to ensure there is a sustainable mix of properties available and in targeted areas where there is greatest need.” Estate agent Jackson-Stops said upsizing families and downsizing retirees are expected to continue driving sales over the year ahead.
But it said lengthy transaction times remain a challenge, with the time between an agreed sale and an exchange of contracts averaging more than three months in some markets.
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