Housing Market Rushes to Beat SDLT Deadline: February 2025
The property market has seen a slightly sluggish start to the year as home buyers waited for the February base rate fall to secure better mortgage rates. There has been a significant uplift in the second half of February, which appears to be gaining momentum. We expect the usual springtime activity to take off with a bang through March and April.
March 2025 is set to be a critical month for the UK housing market. First-time buyers are racing to beat the Stamp Duty deadline, potentially triggering a conveyancing logjam. Political uncertainty and rising inflation, now at 3.0% and projected to climb, add to the pressure. The Bank of England's focus on controlling this rising inflation will influence the timing of further base rate cuts.
However, there's a flicker of optimism: The first base rate cut of 2025 arrived, with forecasts suggesting a drop to 4% or lower by year's end. Currently, the average 5-year fixed mortgage is 4.69%, and the 2-year is 4.87%, though the lowest available rates dip below 4%. Household savings hit a record high at the end of last year, suggesting more first-time buyers are preparing to enter the market.
However, it's worth noting that the government's ambitious target of building 300,000 new homes annually is unlikely to be met, continuing a pattern of missed targets and an ongoing shortage of available property.
It's also vital to note that average house price data for England and Wales has been revised at the Land Registry, dating back to 1995; they are now giving the current average at around £285,000, as opposed to the previously reported £301,839.
By region, average prices range from £161,389 to £548,939, with London's average property costing 3.4 times the North East's, but the gap has been shrinking since the peak of August 2022.
London is the only region with average property costing less than the same time last year and has the poorest ten-year price growth by a long shot. Is the capital finally reaching a plateau?
Stamp Duty Land Tax (SDLT) deadline fuels March frenzy
With the Stamp Duty Land Tax (SDLT) relief for first-time buyers set to change from March 31st, 2025, a wave of transaction completions is anticipated, creating a significant bottleneck in the conveyancing process. This rush to beat the deadline is already evident in the increased volume of pending legal completions.
According to Rightmove's latest House Price Index, 'There are more than 550,000 homes sold yet awaiting legal completion, 25% more than at this time last year.'
The market now faces the challenge of absorbing this policy change, with possible ripple effects across the conveyancing sector.
Transactions in the next month could be affected by increased processing times, potential backlogs, and added stress for both conveyancers and homebuyers in a frantic, time-sensitive period.
Certain regions and buyer demographics will feel the impact of the SDLT change more acutely than others. For example, in areas where property prices are generally lower, many first-time buyers will continue to find homes below the stamp duty-free threshold.
However, those purchasing properties in the £500,001 to £625,000 range face a significant financial burden. If they fail to complete their purchase before the deadline, they could incur up to an additional £11,250 in costs.
While standard purchase completions are unlikely to be squeezed in by the deadline, gifts or transfers via a deed might be possible, as they involve a shorter process.
Source: Rightmove.
Inflation surge and economic uncertainty challenge Housing Market
The market is facing increased strain as inflation has risen more rapidly than expected at the start of the year. This increased inflation has put pressure on the Bank of England to keep interest rates higher for longer, which in turn means higher mortgage rates.
Official figures from the Office for National Statistics (ONS) indicate a significant increase in the headline inflation rate, reaching 3.0% in January. According to Grant Fitzner, Chief Economist at the ONS, "Inflation increased sharply this month to its highest annual rate since March last year.'
The Bank of England anticipates that inflationary pressures will continue to build throughout the year, with projections suggesting a potential peak of 3.7%.
This forecasted increase is expected to be largely driven by rising energy costs and increases in regulated prices, such as those for water and public transportation.
While the Governor of the Bank of England has acknowledged the anticipated rise in inflation, he has clarified that it is primarily attributable to external factors rather than the underlying strength of the domestic economy.
Nevertheless, the housing market remains highly sensitive to any potential adjustments in monetary policy that the Bank may implement.
In addition to inflationary pressures, the housing market is also experiencing a period of economic uncertainty, particularly concerning incoming policy changes from the government.
We could see policy changes to the 7-year Inheritance Tax rule, Capital Gains Tax brackets shifting, and other tax rises in April 2025, potentially dragging more people into paying higher rates of tax.
Meeting ambitious housebuilding targets is proving challenging, as evidenced by recent data indicating a decline in housing completions compared to previous periods.
Sources: The Times, The Guardian.
Will mortgage rates go down in 2025?
On the 6th of February, the first base rate cut of the year occurred and now sits at 4.5%. Further reductions are expected throughout 2025, but the timing and extent of these cuts remain uncertain.
Economic indicators suggest that adjustments to the base rate may not be immediate as inflation rose to 3% in January, but there is still hope that we will get two or three more cuts to close out 2025 with a base rate of 4% or lower.
The higher-than-expected inflation rate may delay further base rate cuts, as the Bank of England seeks to control price pressures.
For home buyers, the decision of whether to act now or wait presents a complex scenario. Although mortgage rates are gradually decreasing, any further reductions to the base rate will influence fixed-term affordability.
Remember, the Stamp Duty relief for first-time buyers changes on March 31st, with the threshold dropping from £425,000 to £300,000, which could offset any potential savings from lower mortgage rates. House prices are generally expected to continue their upward trend, so delaying your home purchase in anticipation of lower rates could be offset by increased property values.
It's worth noting that the average house price figures have been revised significantly, going back to 1995. We need to see if these numbers settle down before making any long-term predictions. This kind of data fluctuation adds an extra layer of uncertainty to the market.
In a 2024 Zoopla article, Nic Hopkirk suggested the base rate might reach 3.5% by the end of 2025.
We've seen the mortgage rate average staying higher than expected at around 5% but the lowest products on the market are hovering at around 4%.
The lowest rates available for 2-year and 5-year fixed-rate mortgages are 4.04% and 3.97% respectively. Source: Rightmove.
Will there be a UK recession in 2025?
The Quarterly Economic Forecast (QEF) predicts the UK economy will grow by 1.3% in 2025 and 1.5% in 2026. Source: British Chambers of Commerce (BCC).
This, however, is well below the pre-pandemic average. NEISR estimate that Britain's poorest households will not recover fully until 2027.
Property sales volume up MoM but down YoY
England & Wales
Land Registry data reveals that across England and Wales, sales volumes reached 48,833 in October 2024. This represents a 12% increase month-on-month (MoM).
This monthly uptick suggests a potential seasonal adjustment or a slight resurgence in buyer activity. The -15% year-on-year (YoY) declines reflect the impact of previous interest rate rises, inflation, and cost-of-living pressures on buyer confidence. This suggests that while there may be short-term fluctuations, the trend remains one of reduced overall market activity.
The month-on-month increase, however, offers a glimmer of potential recovery, and we expect the springtime rush to hit the property market in full force in the run-up to Easter.
Property market activity by region
Sales volume in the East of England was highest, relative to the same month last year at -12%, closely followed by the South West at -13%. The North East saw the biggest decline in property sales at -26%.
Last year, market activity was already down and falling to levels similar to the 2008/9 crash. In comparison with the same month ten years ago, we can see how dampened the market truly is.
In complete contrast with the YoY activity, the North East is faring best, down 38% from its 2014 sales volume, followed by Wales, the North West, and Yorkshire & the Humber at -39% vs 2014. London and the West Midlands take joint last at -51% vs 2014.
Source: Land Registry HPI for October 2024, 2023 & 2014
A Year of Growth? Analysing the 4.2% Rise in Property Prices
The latest year-on-year sold data from the Land Registry (to December 2024) shows property prices in England and Wales increased by +4.2% from £273,605 to £285,089.
This growth suggests that the demand for housing remains strong throughout the country, even in the face of higher interest rates and a cost-of-living crisis.
Short-term regional house price growth
Year-on-year, the North East has seen the greatest price growth (+7%), in part driven by home buyers and investors seeking value for money in an increasingly unaffordable property market and much-needed urban regeneration, as we discussed in The Mirror. London's average house price is just £173 under the same month last year, making it the only region to see negative growth (albeit nominal).
In order: North East (+7%), Yorkshire and The Humber (+6%), North West & East Midlands (+5%), West Midands, East of England, South East and South West (+4%), Wales (+3%), London (+0%).
Long-term regional price growth
The region with the best average long-term return on investment is the West Midlands, with average property prices up 67% on the same month ten years ago. The West Midlands is relatively affordable, bang in the middle of everything else, and offers the perks, amenities and opportunities of its large cities as well as open countryside. This popularity, as well as major regeneration, development and investment, has driven the greatest price increase of any region.
London is left in the dust at only +27% growth over ten years; the eye-watering prices in the capital leave less room for growth.
In order: West Midlands (+67%), North West (+66%), East Midlands (+63%), Wales (+61%), Yorkshire & the Humber (+56%), England & Wales (+52%), East of England (+51%), South West (+50%), South East & North East (+44%), London (+27%).
Properties in London are worth 3.4 times more than in the North East
The gap between average prices in the most and least expensive regions is £387,550, or 240%, highlighting the profound economic and market forces that shape these regions.
Average salaries for 2024 stood at £47,455 for London and £32,960 in the North East, a difference of £14,495 or 44%, so the reason for this disparity goes beyond the money residents have to spend.
As the nation's capital, London attracts high-net-worth businesses and individuals, driving up demand for high-end housing. However, this growth in London seems to be reaching something of a ceiling, as we've seen already with the relatively lower long-term price growth. The gap between London and the North East is smaller than it was at the peak of August 2022 when it stood at 283%.
The move toward remote work since the pandemic and buyers' priorities shifting toward space, quality of life, and access to the outdoors may be beginning to change the regional profile of the property market.
Flats vs houses: Decoding the price gap for first-time buyers
The average price of flats and maisonettes has been higher than terraces due to their greater concentration in expensive central city locations. Nonetheless, flats fell behind the relative parallel growth of each house type in 2020 and are now cheaper than all house types.
Detached houses are the most desirable due to space, privacy and land. This category encompasses anything from a suburban family home to a vast country estate, raising the average price £180k over semis at £460,526. The gap between semi-detached (£280,169) and terraced properties (£233,885) is less extreme. This represents the bulk of our housing stock with consistent demand.
The most compelling narrative for first-time buyers is the price gap between these house types and flats/maisonettes. As houses outgrow flats, flats become relatively more affordable than ever.
The average price of a flat or maisonette is £222,343, requiring a 10% deposit of £22,234 with a mortgage of £200,109, requiring a combined borrower income of £44,469 per annum. However, this average is driven upwards by the price of flats in London; flats and maisonettes in every other region fall below this average and are even more affordable.
Average cost of flats & maisonettes, in order: North East (£102,175), East Midlands (£129,444), Yorkshire and the Humber (£130,288), Wales (£131,943), North West (£140,095), West Midlands (£141,199), South West (£180,649), East of England (£198,574), South East (£218,232), London (£439,863).
This means that flats are increasingly viable as a first step on the property ladder, but due to the weaker year-on-year growth (1.6% vs 4.5% - 5.3%), they make poorer long-term investments. A savvy homebuyer will purchase a flat first and move up the property ladder to a house as soon as they have built enough equity. This will help to keep flats affordable and available to other first-time buyers as starter homes.
Why are flats falling behind on growth?
- Prioritising space: Since the pandemic, space and access to the outdoors have become more of a priority among home buyers.
- Uncertainty over leasehold reform: Changes to legislation which are yet to take effect have cast uncertainty over leasehold value, the cost of extension, and various other leaseholder rights. This has temporarily damaged buyer confidence.
- Cladding issues: Following the Grenfell disaster, essential safety requirements have been added surrounding external cladding systems on taller buildings. This has resulted in concerns over safety and challenges to acquiring a mortgage.
- Additional costs: While ground rent has been reduced in almost all cases, service charges on leasehold flats and maisonettes continue to deter some buyers.
Mortgage approval reports
Home buyers
January's mortgage figures aren't just data points, they're a market pulse. The 18.32% rise in purchase mortgages YoY screams one thing: urgency.
Buyers are sprinting to complete before the Stamp Duty deadline while buoyed by the recent base rate cut; they are looking to secure a mortgage before their SDLT liability increases or the rate goes up again.
Remortgages
Remortgage approvals also increased year-on-year, but the growth was more moderate at 8.86% for January 2025.
The moderate growth compared to new mortgage approvals could indicate that some homeowners are hesitant to remortgage, or they're waiting for more favourable interest rates. However, they risk being left behind or missing out completely if the economy turns and the base rate increases.
It's important to note that sales volume data lags behind mortgage approval data by several months, meaning we are yet to see the full impact of these approvals on completed sales. However, the overall trend suggests a continued housing market recovery as we continue through 2025.
What are the current mortgage rates for homebuyers?
The current average 5-year fixed rate mortgage is 4.69% and the current average 2-year fixed rate mortgage is 4.87%. However, the lowest available 2-year fixed rate is 4.04% and the lowest available 5-year fixed rate mortgage is 3.97%. Source: Rightmove.
If your current mortgage deal is about to end (in the next 3-6 months), you should start the remortgage process before the best rates disappear. You'll want to avoid being put on your lender's Standard Variable Rate (SVR) which is on average around 8% - much, much higher than the average fixed rate mortgage.
How many new-build properties are being built?
Data from the Ministry of Housing, Communities and Local Government (MHCLG) reveals a shift in the balance; in Q3 2023, starts were 21,870 and completions were 39,940, whereas in Q3 2024, starts were 33,750 (15% up) and completions were 30,710 (20% down). This indicates a positive shift toward building targets, evidenced by a significant increase in starts and a smaller decrease in completions.
The government's ambition to substantially increase the housing supply, with a target of 300,000 new homes per year, remains a key policy objective. However, obstacles such as planning constraints, limited land availability, economic uncertainties, skills shortages, and infrastructure limitations continue to impede progress in the new build sector.
Streamlining planning processes, securing development land, expanding infrastructure and incentivising private enterprises will be crucial if Labour wants to come close to its target.
New Build prices soar through 2024
New build properties have consistently attracted a price premium in the UK housing market, reflecting the appeal of modern features, desirable locations, energy efficiency, and potential long-term value.
However, the current price gap is unprecedented, almost doubling the historical difference. With new build properties being around 46.84% higher than the average property price, is it worth the investment?
In October 2024:
- The average price of a new build property was £418,595.
- The average price of all property types was £285,061.
Buyers should carefully evaluate whether the price premium for a new build home aligns with their budget and priorities. The price difference between new builds and the overall market will remain, and will likely increase, as demand for modern and efficient homes persists.
Andrew Boast FMAAT
CEO of SAM Conveyancing
It's exciting to see the first base rate cut of 2025. With more cuts potentially on the way, we are presented with a real window of opportunity and I'm cautiously optimistic about the direction of the housing market in England & Wales.
However, the Stamp Duty changes on April 1st for first-time buyers could cause a rush of completions before the deadline, creating a surge in sales and a potential conveyancing bottleneck.
Inflation hitting 3.0%, and possibly reaching 3.7% later in the year means the Bank of England might hold off on more rate cuts. This has a knock-on effect on mortgages and how confident buyers feel, as the anticipation of lower rates often drives increased interest and market optimism.
We're seeing property sales increase month-to-month, but the year-on-year numbers show we're still dealing with persistent economic challenges. The market will adjust, but it won't be straightforward and it won't be quick.
The growing gap between flat and house prices is interesting for first-time buyers. Flats are more affordable compared to houses, especially outside London. But, they're not growing in value as fast as houses.
This means they're a good way to get on the ladder, but maybe not the best long-term investment. It’s a good strategy to buy a flat first and move up to a house later, and that can keep flats accessible for other first-time buyers.
In the new build sector, we're seeing more starts than completions, which is a step in the right direction for the government's targets. However, planning and infrastructure issues are still a problem. The big price difference for new builds – about 46.84% more than average – means buyers need to really think about whether it's worth it.
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Property Mark (NAEA).
Without Killing Anyone
This book could be the difference between every mover’s dream, buying and moving into your new home stress free, or, stress, missed deadlines, legal disasters, building defects, and possibly the collapse of the whole transaction. (Costing you a small fortune, a head full of grey hairs, and, driving you to threaten the life of your solicitor, lender, co-owners, family, partner, or some combination of all five).
With more than two decades’ experience in the conveyancing sector and over 50,000 successful client moves under his belt, Andrew shares insider tips and advice to empower you as a buyer, giving you the tools to make the best decisions for your circumstances and ease the chaos.
Available on Amazon | Kindle | Paperback
