UK house prices to grow 2-4% in 2025 – Nationwide

The UK’s housing market has exhibited surprising resilience in 2024, despite affordability challenges, mortgage market activity as house prices demonstrated positive momentum.

That’s according to Nationwide’s chief economist, Robert Gardner, who also highlights the deposit hurdle facing first-time buyers.

He also points to the high rent costs, and the strain of higher mortgage rates is having on potential homeowners.

‘Record rates of rental growth’

Mr Gardner says: “At the start of the year, house prices remained high relative to average earnings, which meant the deposit hurdle remained high for prospective first-time buyers, a challenge that had been made worse by record rates of rental growth in recent years, which has hampered the ability of many in the private rented sector to save.

“Moreover, for many of those with sufficient savings for a deposit, meeting monthly payments was a stretch because borrowing costs remained well above those prevailing in the aftermath of the pandemic.

“For example, a typical mortgage rate for someone with a 25% deposit hovered around 4.5% for much of the year, three times the 1.5% prevailing in late 2021 before the Bank of England started to raise Bank Rate.

“As a result, it was encouraging that activity levels in the housing market increased over the course of 2024.”

‘Mortgages approved for house purchase’

He went on to say: “The number of mortgages approved for house purchase each month rose above pre-pandemic levels towards the end of the year.

“Similarly, after starting the year registering small annual declines, the pace of house growth moved firmly into positive territory, approaching 4% in November.”

Mr Gardner says that the stamp duty changes are likely to generate volatility, as buyers bring forward their purchases to avoid the additional tax.

That move will see a jump in transactions in the first three months of 2025 – especially in March.

Three to six months of market weakness

Following the jump, there will be three to six months of market weakness – as seen in the wake of previous stamp duty change.

Mr Gardner says: “This will make it more difficult to discern the underlying strength of the market.

“But, providing the economy continues to recover steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth, where the latter is likely to remain broadly in the 2-4% range in 2025.”

Property prices will rise by 3.4%

The announcement from Nationwide chimes with a prediction from Chesterton’s that the UK’s property prices will rise by 3.4% and by 3% in London next year.

The rise will be driven by lower mortgage costs, steady but modest growth in the UK economy and inflation remaining around the Bank of England’s target of 2%.

This year, property prices rose by approximately 3%, while London experienced a decline of about 3%.

Chestertons says prices fell because there were more homes available, Stamp Duty changes along with a stronger pound and the ending of the non-dom tax regime.

Increasing interest in property

Toby Leek, the NAEA Propertymark president, said: “Propertymark members have reported an increasing interest in property with sales higher than usual, defying the usual winter lull usually seen this time of year.

“Buyers and sellers in England and Northern Ireland are looking to complete their home move before the Stamp Duty changes commence from April 2025, and it’s expected that coupled with slow increases in affordability and wages, this spike of momentum in mortgage approvals and housing market activity will continue.”

He added: “After this spike, buyers and sellers with time on their side may then reap the rewards of a slower paced market to ensure each step of their house move is fully considered.”

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