The Current UK Housing Market & What Could Be Expected Into 2025

The UK housing market is experiencing a period of cautious growth, with house prices showing a modest increase in certain areas, though challenges remain for potential buyers.

Here’s an overview of the current state of the market and what we can expect going into 2025.

House prices have been rising in 2024, with national annual growth sitting around 3.2%. Growth has been particularly strong in the North of England, Scotland, and parts of the Midlands, where cities like Manchester, Leeds, and Birmingham are seeing increases of 3-6% due to economic regeneration and high demand for housing. In contrast, growth in London and the South East has been slower, with London posting a 2% annual rise​ (Savills)​(ERE Property).

This modest rise in prices follows a period of volatility, as high inflation and rising interest rates in 2023 had dampened market activity. However, declining mortgage rates, now below 5% for many fixed-rate products, have provided a boost in demand and improved affordability slightly​ (Blog | Magnate Assets).

Despite falling mortgage rates, affordability remains a key issue, particularly for first-time buyers. The cost of borrowing, while lower than the highs of 2023, still exceeds pre-pandemic levels. Homebuyers are facing higher monthly payments, and with inflation still impacting everyday costs, securing a mortgage remains a challenge for many. Furthermore, the UK continues to grapple with a significant housing shortage, exacerbating price increases in high-demand areas ​(Knight Frank).

For those looking to buy in the rental market, the picture is mixed. Rising demand for rental properties has driven up rental yields, especially in northern cities like Liverpool and Leeds, which are attractive for buy-to-let investors​(Blog | Magnate Assets).

Looking ahead, predictions for 2025 vary. Some forecasts suggest that house prices could see modest growth of around 2-3% as inflation continues to fall and the Bank of England potentially cuts interest rates. However, others predict a slight decline in prices, particularly in areas where affordability is already stretched​ (ERE Property).

Regions outside of London, particularly in the North and Midlands, are expected to outperform due to more affordable housing, economic regeneration, and infrastructure projects like the HS2 rail link. Cities like Manchester, Birmingham, and Leeds are likely to remain investment hotspots, with strong rental yields and ongoing demand​ (ERE Property).

Government housing policies, such as attempts to increase home construction, are another factor. Despite ambitions to build 300,000 new homes annually, targets have repeatedly been missed, and this supply-demand imbalance is likely to continue driving prices upward, especially in urban centres with growing populations​ (Blog | Magnate Assets).

The market’s future also depends on broader economic factors, including inflation and geopolitical events, which could affect the pace of interest rate cuts. Should inflation remain high, this could delay further reductions in borrowing costs, affecting both buyers and sellers​ (Savills)​(ERE Property).

The UK housing market is expected to remain stable but challenging for many buyers, with regional variations in growth. Cities with strong economic fundamentals and infrastructure development are likely to see continued price increases, while affordability concerns will keep some buyers on the side-lines. Investors, particularly in the rental sector, are well-positioned to benefit from rising demand in key cities.

Overall, the outlook for 2025 suggests a market that will continue to grow, albeit at a slower pace, with regional diversity playing a significant role in shaping price trends.