(Commonwealth_Europe) According to new Halifax data, U.K. house prices declined for the first time in nine months in December, marking a 0.2% decrease compared to November. This was the first drop since March and was below the expected 0.4% price rise forecasted by economists. The average property value in the U.K. fell to £297,166 ($372,560).
Despite this monthly decline, house prices remained higher by 3.3% year-over-year in December, though this annual growth also showed a slowdown from the 4.7% increase recorded in November. Economists had predicted a 4.2% rise in annual property values, indicating that the pace of growth is easing.
The disappointing housing market data led to a drop in shares of prominent U.K. homebuilders, including Taylor Wimpey, Persimmon, Bellway, and Barratt Redrow. These builders, along with others in the sector, have been impacted by shifting market conditions that suggest a cooling housing market.
Throughout 2024, U.K. house prices had risen steadily, experiencing a five-month streak of increases after stagnation. This rebound was partially fueled by improved sentiment following the U.K. general election and the start of a cycle of rate cuts by the Bank of England. However, by the end of the year, there were signs of pressure on the housing market as the government’s budget, coupled with rising borrowing costs, dampened homebuyer enthusiasm.
The Bank of England’s decision to slow down its rate-cutting cycle, along with the government’s tax-and-spend budget that increased the cost of U.K. borrowing, has strained the housing market. Amanda Bryden, head of mortgages at Halifax, commented that higher mortgage rates would likely continue to pose challenges in 2025, despite relatively modest price growth expectations.
“Mortgage affordability will remain a challenge for many,” Bryden explained, noting that the Bank of England’s rates would likely decrease at a slower pace than had been previously anticipated. The financial strain of higher mortgage payments could discourage many potential buyers as a result.
In addition to the drop in house prices, the Bank of England’s November data showed that mortgage approvals had also underperformed, falling below expectations and below the number recorded in October. This decline indicated early signs of trouble for the housing market, especially after the government’s budget, which cast uncertainty over the country’s economic outlook.
According to Tom Bill, head of U.K. residential research at Knight Frank, the data suggested that the housing market was starting to show signs of weakness. He noted that higher borrowing costs would likely lead to a slowdown in market activity. “Some sort of slowdown is inevitable because borrowing costs have risen,” Bill said, underscoring the pressure the housing market faces in the near term.
However, there is some hope that housing transactions may pick up early in 2025, as the government’s planned changes to the Stamp Duty Land Tax might stimulate demand. The end of a pandemic-era reduction in stamp duty will lead to higher transaction costs for homebuyers starting from April 1, 2025. This looming change is expected to encourage more buyers to make deals before the tax increase kicks in.
Stephen Perkins, managing director at Yellow Brick Mortgages, believes that these stamp duty changes are a significant factor in supporting property values at present. He argued that the tax incentive would likely boost short-term demand for homes. Nonetheless, Tom Bill cautioned that any increase in transactions would likely be brief, predicting a slowdown in housing activity after the initial rush. “There’s a ticking clock to some degree,” he said, implying that once the stamp duty deadline has passed, housing demand could dip again.
As a result of these market dynamics, Knight Frank has adjusted its property price growth forecasts for the coming years. The real estate firm now expects U.K. property prices to increase by 2.5% in 2025, followed by a 3% rise in 2026. This is a downward revision from the previous forecast of 3% growth in 2025 and 4% in 2026, reflecting the uncertainty in the market caused by rising borrowing costs and the evolving economic environment.
While the market may experience a brief uptick in activity due to the stamp duty changes, the broader outlook for the housing market in 2025 suggests continued challenges. Mortgage affordability remains a key concern, and the uncertainty surrounding the Bank of England’s interest rate decisions adds to the volatility, making it difficult to predict whether the current trend of modest price growth will continue or if a more substantial correction will occur.
