As 2025 approaches, experts predict a shift toward a buyer’s market for house hunters, offering them greater negotiating power. While there is cautious optimism about the year ahead, challenges such as rising taxes, high interest rates, and the end of stamp duty relief for first-time buyers could impact the market. Additionally, rising house prices are reversing the declines seen in recent years, marking a new chapter for the housing sector.
What is Causing the Shift in Market Mood?
The housing market’s mood has transitioned from uncertainty to cautious optimism as the year draws closer. One key factor behind this shift is the rapid decline in mortgage rates, which have fallen more quickly than anticipated. House prices are moving upwards, reversing the declines of 2023. However, despite this positive momentum, the future direction of interest rates remains uncertain. The emergence of a buyer’s market gives potential homeowners more room to negotiate and choose the right property.
How Will Rising House Prices and Improving Affordability Impact the Market?
Forecasts predict that house prices in Britain will rise by 3% in 2025, with further increases expected in the following years. The market is projected to see a 3.5% rise in 2026 and a 2.5% increase in 2027. These predictions are based on the improving affordability situation in the market.
Affordability is improving, and house prices are moving upwards. This will help stabilize the market, as incomes are expected to outpace inflation for the second consecutive year. The improving affordability picture is expected to give buyers more confidence, particularly as first-time buyers continue to play a significant role in the buyer’s market.
Will London Outperform the Rest of the Country?
In addition to the overall positive outlook, 2025 could begin a “new housing cycle,” where London starts to outperform other regions regarding house price growth. Housing market forecasts predict a 4% increase in house prices in London by the fourth quarter of 2025, making it the top performer for the first time since 2015.
This price growth in London could be partly driven by major companies mandating a return to permanent office work. As workers return to London, demand for properties in the capital will increase.
Why Will 2025 Continue to Be a Buyer's Market?
The forecast for 2025 suggests that it will continue to be a buyer’s market. One reason is the number of properties available per estate agent, which is decade-high for this time of year.
“There’s less competition amongst buyers than during the pandemic markets, which could provide them with some breathing room to choose the right home at the right price,” said one expert.
Data revealed a record number of properties listed for sale by agents on Boxing Day, signaling a strong start to the new year for potential buyers. Moreover, buyer demand has surged, with inquiries up by 20% on December 26 compared to the same day in 2023. This increase in buyer interest will likely provide more options for those looking to move in 2025.
How Will First-Time Buyers and Stamp Duty Relief Affect the Market?
First-time buyers are expected to continue driving transaction numbers in 2025, just as in 2024, accounting for a record 31% of all sales. However, potential changes to stamp duty in April could cause some distortions in the market.
While a slight uptick in transactions is expected just before the changes take effect, experts believe that the impact of these changes will not cause a significant rush to buy. The forecast notes, “While there might be a slight uptick in transactions just before these changes take effect, the overall impact is not expected to cause a significant rush as the potential savings for most movers will be relatively small.”
What Role Will Affordability Play in the Housing Market?
Despite the uncertainty surrounding stamp duty changes and rising interest rates, affordability is expected to remain the key determinant of the market’s direction. With incomes set to outpace inflation for the second consecutive year, many buyers who had previously been delaying their moves may now feel more confident in purchasing a home.
“Overall, affordability is expected to remain the key determinant of the market’s direction, with incomes set to outpace inflation for the second year running, encouraging those who had been deferring relocation to consider moving,” the forecast concluded.
Conclusion
As 2025 unfolds, the housing market is poised for a shift that could benefit buyers, particularly those with negotiating power. While challenges such as high interest rates and the end of stamp duty relief could influence the market, a more affordable landscape and improving conditions in London suggest that house prices will continue to rise, providing buyers with opportunities for long-term stability. The emergence of a buyer’s market further emphasizes the evolving dynamics, giving house hunters the advantage in securing their ideal homes.
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