The UK property market is poised for an interesting year in 2025, with several factors influencing its trajectory. Below we list some key insights and forecasts that property professionals and investors should consider to stay ahead of the curve:
1. Interest Rates
Post the Autumn Budget, it was felt by many economists that lower interest rates were needed to not only help monetary pressure on households but also to stimulate the housing market, making mortgages and loan payments more affordable for buyers. The Monetary Policy Committee (MPC) held a meeting on 5th February, where they voted by a majority of 7–2 to further reduce interest rates by 0.25%, bringing them down from 4.75 to 4.5%. In fact, all members of the MPC voted to cut the base rate: two of the members wanted a larger 50 base points cut, with seven members voting to cut by 25 basis points. The last time the rate stood at 4.5% was May 2023.
With the slight decrease in the interest rate, this could make mortgage payments more affordable and in turn, could lead to an increase in demand for properties.
2. Strengthened Rental Market
Another key factor set to influence the UK property market in 2025, is the growth in the rental market, which is presently showing little sign of slowing down.
In the 12 months to December 2024, UK wide average rents increased by 9.0%:
In England, average rents increased to £1,369
In Wales, average rents increased to £777
In Scotland, average rents increased to £991
In Northern Ireland average rents increased to £942.
Demand for rental homes remains high, but the imbalance between supply and demand throughout the UK is narrowing. However, at the end of 2024, the number of available rentals was still 18% lower than before the COVID-19 pandemic.
A recent joint report by Savills and the LSE indicates that the rental market in London has shrunk by 41% since the end of the pandemic, mainly due to landlords exiting the market. This can only lead to further pressure on what is already an extremely expensive place to rent in comparison with the rest of the UK.
However, all things considered, it is expected that the rental market will remain robust growing by 18% over the next five years as predicted by Savills. This may be driven by a growing population and a shift towards renting among younger demographics. The outworking of this is the potential enhancement of rental yields for property investors.
3. Increased Spending Power
With inflation stabilising, interest rates dropping and wages potentially rising, consumers may have more disposable income. This is turn could potentially see more investment into the property market, which would have the benefit of driving higher property prices. Not ideal for buyers but excellent news for property developers, especially those with development properties to sell.
Current Forecasts for House Prices
Savills Forecast
Savills has revised its five-year forecast for UK house price growth from 17.9% to 21.6%. This indicates a more optimistic outlook, with growth expected to be more evenly distributed across regions.
Rightmove Prediction
Rightmove anticipates that house prices could rise by 4% over the course of 2025, driven by increased buyer activity and lower mortgage rates.
Regional Growth
The regions likely to experience the fastest capital appreciation include:
North West
Yorkshire and the Humber
Scotland
Wales
These areas are expected to benefit most from economic growth and increased investment.
Conclusion
In summary, the UK property market in 2025 is expected to see a combination of lower interest rates, a strong rental market, and increased consumer spending power, all contributing to a positive outlook for the housing market.
Investors and property professionals should keep an eye on regional trends and be prepared to adapt to the evolving market landscape. As always, thorough research and strategic planning will be essential for success in this dynamic environment. And if you want some assistance with your forward planning or have issues with funding, then please get in touch using the link below:
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