Average figures show that in 2024 there was positive price and rent growth, albeit at a slower rate than in the previous few years.
Overall, the property market performed better last year than had been forecast, thanks to strong wage growth, low unemployment and the economy being more resilient than many had expected.
Mortgage rates also started to become more competitive, which helped keep the sales market moving.
Zoopla’s December UK House Price Index revealed an average increase in value of 1.9% for the year, with the end of year sales pipeline at its highest for 4 years and the number of sales agreed in the four weeks to mid-December 23% higher than in 2023.
In lettings, a continuing imbalance of supply and demand in the rental market kept average rents rising, although – as always - some areas performed much better than others.
Zoopla’s December Rental Market Report reveals annual rent growth for new lets in the year to October 2024 was 3.9%, with London showing the smallest rise of just 1.3%, while Northern Ireland topped the table at 10.5%.
But what is 2025 likely to hold - will we see much of the same?
Economic outlook
Inflation and the Bank of England base interest rate are key to the future of the property market. And the stronger and more stable our economy, the better overall consumer confidence is likely to be, which is critical to keeping the housing market moving.
Last year, the leading UK forecasters were broadly in agreement that while there would probably be a slight uptick in mortgage interest rates in early 2025 before they returned to a downward trend, the base rate would fall through the year.
But following the changes announced in Labour’s Autumn Budget - particularly around National Insurance costs for businesses, which could lead to general prices rising, there have been some recent revisions to forecasts.
In September, KPMG anticipated headline inflation rising to 3% in the early part of 2025 but ending the year around 2%, and they forecast the base rate dropping to 3.5% by December.
However, in KPMG's outlook published in January, they have revised these figures and are now suggesting inflation will sit somewhere between 2% and 3% for the next two years, before returning to the target of 2% in 2027.
They predict the base rate is unlikely to drop below 4% this year but should reach 3.5% in 2026.
Capital Economics is slightly more optimistic about how quickly the base rate will fall. Although they previously forecast it would be at 3% by the end of 2025, they now believe it will be cut to 3.75% this year and then to 3.5% in the early part of 2026.
And Oxford Economics is in agreement, predicting four base rate cuts of 0.25% this year, beginning in February.
Meanwhile, in its 5-year forecast, published in October, the Office for Budget Responsibility (OBR) predicted inflation would be at 2.6% in 2025-6.
Importantly for both buying and renting affordability, it pegs both wage/salary and average earnings growth above inflation, forecasting +3.8% and +3% respectively.
All in all, it is encouraging to see that there appears to be stability in the market so far and both inflation and the bank rate are still expected to fall – it’s just going to take a little longer than previously expected. And, of course, depends on there being no ‘shocks’ to the market.
What’s likely to happen in the sales market this year?
The CBRE is forecasting average UK prices to grow by 3.5% this year and see sales transactions hit their long-term average of 1.2m.
They predict Northern Ireland, the North-West, West Midlands and Yorkshire & Humber should perform particularly well through 2025.
JLL has forecast the same as the CBRE for prices and transactions, and both organisations expect growth to fluctuate somewhere between 3.5% and 4.5% for the next four years.
Provided inflation moves as expected towards its 2% target over the next 3 years, this is good news for the market, as stability and steady upward growth feed consumer confidence.
One significant change this year for buyers in England and Northern Ireland is that Stamp Duty Land Tax (SDLT) thresholds at the lower end of the market are returning to the levels they were at prior to 23rd September 2022. From 1st April:
- The nil-rate threshold – the purchase price above which SDLT is charged - will drop back from £250,000 to £125,000, and a rate of 2% will be applied to the portion from £125,001 to £250,000.
- The nil-rate for first-time buyers will drop back from £425,000 to £300,000, and the maximum purchase price to qualify for this will also reduce from the current £625,000 to £500,000.
As such, we expect that many buyers, particularly First Time Buyers (FTBs), will be keen to complete on a purchase in the first quarter of the year.
Rental forecasts for the year
In the three years from the start of the pandemic in 2020, we saw demand for rental properties outstripping supply to such an extent that rents were driven upwards at unprecedented rates.
However, while demand on average is still strong, it has dropped over the past 12 months.
One key reason for this is affordability. According to Rightmove, average rents have risen by 40% since 2019, while wages have only risen by 28%, and they are seeing an increase in the number of properties having asking rents reduced.
In December, Rightmove reported that the average number of enquiries per rental property had fallen from 19 to 11 and the number of people looking to move had dropped by 19% compared to December 2023.
Meanwhile, the number of rental homes available was up by 7%. Although demand is still strong enough for many landlords to continue to be able to let quickly and realise good profits, it is widely expected that 2025 will be a much calmer rental market.
At the lower end of the forecasts, the CBRE is predicting that average rent growth this year will be just 2.3%. JLL and Rightmove both forecast 3%, while Zoopla is the most confident, suggesting rents could increase by 4%.
Although, if some landlords sell up and exit the market as a consequence of the passing of the Renters’ Rights Bill, we could see a temporary shortage of rental properties on the market push prices up again. But because we anticipate a lot of rental sales being made to other landlords – potentially with sitting tenants – any such shortage should be short-lived.
For all landlords who remain in the market, 2025 should be another solid year, particularly in areas where rents are at a more affordable level.
One of the most important things, as always, is to keep track of inflation and ensure that you increase rents by at least that percentage each year, if your tenant can manage the rise, to maintain the real-term value of your profits.
Providing the base rate continues to come down steadily, we should see mortgages follow suit through the year, so it’s worth reviewing the capital value and financing of your property or portfolio if you haven’t done so recently.
To find out how your local market is expected to perform this year and beyond, or if you’d like any help ‘spring cleaning’ your property investment business, just get in touch with us.
The Reeds Rains Content Marketing Team
