Interest rates, stamp duty and sky-high rents: This is what’s going to happen to house prices in 2025

House prices across the UK rose by 4.7% in 2024 and are set to rise further in 2025, according to the latest analysis from Nationwide.

The mortgage provider said the average house price of £269,426 remained just short of the record-high house prices recorded in the summer of 2022.

But records are set to be smashed in 2025 with predictions of a race to secure deals before stamp duty thresholds change in April and a price rise of around 4% by the end of 2025.

Robert Gardner, Nationwide‘s chief economist, said: “Upcoming changes to stamp duty are likely to generate volatility, as buyers bring forward their purchases to avoid the additional tax. This will lead to a jump in transactions in the first three months of 2025 (especially in March) and a corresponding period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes. This will make it more difficult to discern the underlying strength of the market. 

“But, providing the economy continues to recover steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth. The latter is likely to return to the 2-4% range in 2025 once stamp duty related volatility subsides.”

How much will house prices drop in 2025 in the UK?

UK house prices are only expected to rise. The prospect of house prices rising up to 4% in 2025 is grim news for people who cannot afford to get on the housing ladder.

A promise of making homeownership easier has been a core tenant of Labour’s promise to tackle the housing crisis with Keir Starmer pledging to “make the home ownership dream a reality”.

But house prices have continued to rise at a faster rate than wages in recent years.

Analysis from the Office for National Statistics (ONS), released in December, found prices have increased at twice the rate of household incomes in England since 1999. That’s higher than the rate recorded in Wales and Scotland although both countries have seen house prices outstrip earnings too.

The result is the average house price in England is the equivalent of 8.6 years of household incomes ahead of 5.8 years in Wales and 5.6 years in Scotland.

Overall, house prices rose by 0.7% each month in 2024, said Nationwide’s Gardner.

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It remains tough for private renters to keep up and move into owning their own home when they are saddled with record-high rents, he added. The ONS recorded a 9.1% annual rise on average private rents in November last year.

“Mortgage market activity and house prices proved surprisingly resilient in 2024 given the ongoing affordability challenges facing potential buyers,” said Gardner. 

“At the start of the year, house prices remained high relative to average earnings, which meant that the deposit hurdle remained high for prospective first-time buyers. This is a challenge that had been made worse by record rates of rental growth in recent years, which has hampered the ability of many in the private rented sector to save.

“Moreover, for many of those with sufficient savings for a deposit, meeting monthly payments was a stretch because borrowing costs remained well above those prevailing in the aftermath of the pandemic. For example, a typical mortgage rate for someone with a 25% deposit hovered around 4.5% for much of the year, three times the 1.5% prevailing in late 2021, before the Bank of England started to raise the Bank Rate.

“As a result, it was encouraging that activity levels in the housing market increased over the course of 2024 with the number of mortgages approved for house purchase each month rising above pre-pandemic levels towards the end of the year.”

Nationwide is not the only mortgage provider forecasting house price rises in 2025.

Zoopla’s Richard Donnell predicted house prices rises of 2.5% while Rightmove’s Tim Bannister said stamp duty changes left a “cloud over the market”.

Halifax’s head of mortgages Amanda Bryden said last month that “positive employment figures and anticipated decreases in interest rates are expected to continue supporting demand”.

Bryden added: “This should underpin further house price growth, albeit at a modest pace as borrowing costs remain above the average of a few years ago.”

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