House Prices Stabilising and the Mortgage Rate Wait
- Average house prices skyrocketed in 2024 and hit their highest-ever levels, meaning sales volumes have massively decreased.
- We anticipate steady, modest price growth across the UK this year, with regional variations. However, affordability will remain a key concern for many first-time buyers, especially with the Stamp Duty changes from March 2025.
- The UK's inflation rate is currently 2.5%, exceeding the Bank of England's target of 2%, to reduce the base rate.
- As predicted in our November and December reports, the base rate is still widely expected to come down again on the 6th of February to 4.5%.
- While some lenders have already begun offering more competitive rates, the overall market remains sensitive to changes in interest rates.
- The current average 5-year fixed rate mortgage is 5.02% and the current average 2-year fixed rate mortgage is 4.80%.
- The lowest available 2-year fixed rate is 4.22% and the lowest available 5-year fixed rate mortgage is 4.07%.
Three base rate cuts expected in 2025
Lloyds Banking Group CEO Charlie Nunn expressed optimism regarding a gradual interest rate decrease throughout 2025, attributing this to the robust financial position of UK households and businesses.
During his address at the World Economic Forum in Davos, he said: "We think there'll be three rate cuts this year."
"Of course, most people choose to fix their mortgage for two to five years and the pricing on that has been relatively stable and we think that stability is likely to remain for the remainder of this year."
"Those that are on the fixed rates are in a good place, and for those that are on a variable rate, their mortgage is likely to continue to come down slowly with the base rate.
"For those that are remortgaging, they are likely to get a significant uptick depending on when they set their mortgage."
However, Mr Nunn cautioned that economic growth may be constrained by a relative lack of investment, going on to say "What we haven't yet got is investment in growth, and we still have quite a tight labour market with quite high wage inflation."
Source: Sky News.
The affordability crisis is still rife and will be for some time
The housing market has been propped up by rising wages in recent years and more affordable properties in the north of England and areas of Scotland.
However, long-term mortgages might have played a more crucial role than anyone originally thought, with wealth management firm Quilter reporting a substantial increase in borrowers over 36 opting for terms of 35 years or more.
First-time buyers have been getting more and more parental financial assistance too, with Savills projecting that nearly £30 billion will be used from the Bank of Mum and Dad over the next three years for first-time property purchases.
This trend is reflected in the £9.4 billion in gifts and loans from parents recorded in 2023, a near doubling in five years. Nationwide's findings further highlight this trend, with 40% of 2024 deposits sourced from inheritances or gifts.
Sources: Quilter, Nationwide, City AM.
Incorrect EPC tests taking thousands off property prices
The Labour Party has pledged to reform Energy Performance Certificates (EPCs) as part of its net-zero strategy, mandating a minimum C rating for rental properties by 2030.
However, critics argue that the proposed reforms focus solely on eco-friendly upgrades, neglecting the inconsistent EPC assessments themselves.
Experts are raising concerns about the current system, where assessors can qualify with minimal training—sometimes just a three-day online course.
This, coupled with the "non-invasive" methodology, often prevents assessors from verifying insulation or other key energy efficiency features, leading to inconsistent assessments.
Knight Frank's analysis reveals that a one-grade improvement in EPC rating can boost a property's value by 3% above local market growth, translating to significant sums (around £9,000 based on average resale figures).
The call for EPC reform must extend beyond minimum standards to include assessor training, assessment methodologies, and greater oversight to ensure accuracy and fairness in the system. The current system might be failing to provide reliable information to buyers, sellers, and landlords.
Sources: The Telegraph, Knight Frank.
Will there be another base rate fall?
We should expect several cuts to the base rate in 2025, with the first widely expected on the 6th February 2025 when the Monetary Policy Committee (MPC) meets again. We might see a fall to around 4% in Autumn, but this depends on how the wider economy performs.
Homeownership is slipping out of reach for many people, though, so act now if you can afford to buy before prices rise further and borrowing becomes even harder.
Reductions in the base rate would be a welcome sight for prospective buyers and homeowners looking to remortgage, meaning that borrowers can confidently plan their future. We're predicting a healthy remortgage market jolting back to life from February onwards through to the end of the year.
While interest rates have risen in recent years and started to stabilise through 2024, it's important to consider the broader picture.
House prices are expected to continue their upward trajectory (Around 3% per year), so delaying a purchase in anticipation of significant rate drops may not be the most strategic move.
By buying sooner and locking in a mortgage now, you could secure your position in the market and potentially benefit from the house price rises. However, a predicted base rate of around 4% by the end of 2025 means that it might be worth the wait for some.
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.
Will mortgage rates go down in 2025?
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 4.22% and 4.07% respectively. Source: Rightmove.
Lowest September on record for property sales volume
England & Wales
Property sales volume fell by 35% year on year at 39,362 in September, the fourth month in a row. While these figures will increase once the Land Registry data is updated, sales volumes continue to fall.
For context, the 10-year average sales volume number between 2013 and 2023 for September is 80,407.
2023 and 2024 saw sales volumes fall significantly compared to 2022 when the housing market was more active. We're still far below the 'normal' levels of home sales of just a couple of years ago.
London 
London echoes the wider country, falling 39% year on year in August to 4,228, in the most recent data for registered properties released by the Land Registry. For more on London, read: London Housing Market Report.
Average house prices in London remained relatively stable at £511,279 for November 2024, similar to November 2023 which was £511,658.
Are UK house prices falling?
They aren't. They're likely to keep rising. The average house prices in England and Wales rose yet again year on year by 3% to £301,839 for November 2024 (similar to the highest November on record - £302,300 in 2022).
Rightmove reports that the average new seller's asking price is £366,189, increasing by 1.7%. The largest jump at the start of the year since 2020.
The average house price in London maintained around the same year on year for November 2024 at £511,279.
Mortgage approval reports
Home buyers
Mortgage approvals for home buyers dropped slightly in November 2024 to 65,700 from October's numbers (68,129), and up 24% from November 2023. The data is in line with what I'd expect for November pre-pandemic. The average in the last 10 years for November is 66,453.
Sales volume data is released a few months behind the current mortgage approval data so they are yet to catch up. The overall data reflects a housing market recovery in 2025, though.
What are the current mortgage rates for homebuyers?
The current average 5-year fixed rate mortgage is 5.06% and the current average 2-year fixed rate mortgage is 4.81%. However, the lowest available 2-year fixed rate is 4.21% and the lowest available 5-year fixed rate mortgage is 4.07%. 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 7.99%.
Remortgages
The remortgage market growth YOY for November was 19%. November 2024 saw 31,210 remortgages approved, but still a way off from the 40,568 average over the past 10 years for the month.
Many homeowners cannot afford the high mortgage interest rates available now. They might have taken out a mortgage with rates at 1-2% a few years ago but could be left paying more once their fixed term ends. This leaves some homeowners trapped in mortgages they're struggling to pay.
With the potential for better mortgage rates in 2025, we could see a return to the market for floods of remortgagers. If not, numerous homeowners will be forced to sell.
How many new build properties are being built?
The average price of a new build in England and Wales sits at £444,372, 25% up from September 2023. Purchasing a new build property will set you back around £140,000 more than an average-priced home.
New Build prices remain high
Andrew Boast FMAAT
CEO of SAM Conveyancing
Activity in the housing market has been relatively subdued due to a 2024 hangover in January. However, a potential cure for the headache could be imminent.
The widely anticipated reduction in the base rate to 4.5% in February could pave the way for more affordable mortgage rates, stimulating greater activity in the market. This will be particularly useful for first-time buyers and remortgages.
However, predicting reductions in mortgage rates remains challenging, as they are influenced by various factors, including inflation, swap rates, and overall economic stability.
The average price for a property in England and Wales is still high at £301,839, but actually at its lowest since July 2024. Sales volume is 25% down year on year.
Even with stabilising prices and potentially lower mortgage rates, affordability remains a key concern, particularly for first-time buyers. This suggests that while transaction volumes may increase, we're unlikely to see a return to the rapid price growth of recent years. Sustainable, steady growth is more likely.
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS and Property Mark (NAEA).
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