It has been a rollercoaster for the UK housing market in recent years, with new governments, a painful cost-of-living crisis, inflation, and mortgage rates that seem to change with the wind. As we head into 2025 the big questions are basically the same: what is next for first-time buyers, investors, and British homeowners.
The Economic Lie of the Land
Britain is still reeling from the cost of living crisis that really took hold in 2023. Inflation is less of an existential threat, but prices remain high which saw energy and food rise faster than wages.
Even with these issues, the UK economy is relatively stable. Wage growth is in line with inflation, and mortgage rates have started to fall, but there’s no telling when, or if, they're going back to those magnificent historic lows of 1-2%. The British public is slowly starting to accept that 4-5% is the new normal.
Unique Issues in 2025
Homeowners who joined the Pandemic-led Race for Space in 2020 are approaching the end of their fixed 5-year mortgage terms and will have to renegotiate. Some are in for a shock and will simply have to get house valuations, sell their property and enjoy the capital gains, which could impact the market as a whole.
On April 1st, the government's Stamp Duty Land Tax reforms also come into play, and buying a house will get a little more expensive. So expect a flurry of activity in late March as buyers look to avoid the additional levy and potentially a series of price drops as sellers look to cash in on this minor gold rush. A market slowdown could follow, so it could be worth getting a valuation now.
First-Time Buyers: A Shifting Landscape
Affordability is the main issue facing homeowners and would-be first-time buyers in 2025. The higher mortgage rates, substantial deposit demands, and stringent credit mean that home ownership just won't be on the cards for Britons who would otherwise have a foot on the property ladder.
The average first-time buyer is now 34 years old, up from 29 just 25 years ago, and those first-time buyers are increasingly reliant on financial assistance from close family. 40% of first-time buyers now receive £25,000 of assistance to help with their home purchase, and only 8% of non-homeowners between the ages of 25 and 34 have a 10% deposit saved up.
In 2000, the average UK property cost £80,000, and the deposit was a mere £8,000. Now, the average house price has risen beyond £290,000, which means a deposit of £53,000. Only the privileged few can afford that.
Housing Supply and Market Trends
Even if the British public could afford the homes, we simply don't have enough coming onstream. Demand outstrips supply, inflating the price of houses. The government has promised reforms to boost the construction industry, but we haven't seen the results yet.
The population is growing, yet the construction industry faces a shortage of skilled workers that is hampering efforts to accommodate new buyers. The existing population is also ageing, and we need more accessible housing than we're getting right now. That means family homes that could go on the market remain occupied by single, older residents who might be happy to downsize.
There is no quick fix for these issues, and they will continue to compound and affect the market overall.
The Buy-to-Let Market: Challenges and Opportunities
Landlord exits are increasingly common as the regulatory and tax changes start to hit home. Smaller investors are being replaced with institutional investors and larger companies, but the overall rental demand is strong.
Similar reforms in Scotland led to a 6% reduction in the number of landlords since March 2020 but a 3% overall growth in the number of rental properties. So, the face of the buy-to-let industry will change, with a minimal overall effect on renters.
Rents in high-demand areas are expected to increase, too, so private landlords who choose their properties wisely can make a profit.
Will Sustainability Take Off?
New build homes are expected to have an average EPC rating of A or B in the modern era, which will become a requirement thanks to the Future Homes Standard that comes into force this year. Individual homeowners have found that eco-friendly renovations like new insulation, solar panels, and energy-efficient boilers and windows make a difference to the sale price and speed. Environmental awareness is becoming a factor in the housing market, and sellers with inefficient homes will have a harder time in 2025.
This article was written in cooperation with Rich Bertch
