UK Housing Market: A Glimpse of Recovery in 2025

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(Commonwealth_UK) The UK housing market has taken a step back this month, with the average price of a property coming to market falling by 1.8%—the equivalent of a £5,366 discount. This brings the average asking price to £366,592, marking the second consecutive month of price declines larger than typical seasonal adjustments. Typically, October and November witness price drops of approximately 0.8%. However, this year’s dip is more severe due to a mix of factors such as post-budget disappointment and ongoing economic uncertainty.

The downturn comes after a period of pre-budget optimism, which failed to materialize into the hoped-for economic boost. According to property portal Rightmove, the post-budget period has created new challenges for the housing market, with many potential buyers still cautious about making big financial decisions. The seasonal slowdown is steeper than usual as the market heads toward the winter months.

“The usual pattern for this time of year is a smaller, more gradual decline,” said Tim Bannister, Rightmove’s Director of Property Science. “However, the market has been buffeted by a mix of factors, including the delayed effects of the budget announcement and ongoing mortgage rate uncertainty, which have created a larger-than-expected seasonal fall in prices.”

Despite these challenges, Rightmove noted that the housing market performs better than last year. Optimism around the future trajectory of interest rates—particularly the anticipated mortgage rate cuts—has helped keep activity levels higher than in 2023. Despite their caution, homebuyers remain motivated by a long-term outlook that suggests lower borrowing costs shortly.

Looking ahead, Rightmove is optimistic about the recovery of the housing market in 2025. While there are still hurdles to overcome, including the slow pace of interest rate cuts and a still-high volume of homes for sale, the forecast for the coming year is positive. Rightmove predicts a 4% increase in average new seller asking prices in 2025, driven by a stronger market in the second half of the year.

This increase is expected despite the challenges that continue to weigh on affordability. While mortgage rate cuts are anticipated throughout 2025, the pace of reductions is expected to be slower than initially hoped, which may delay some buyers’ ability to purchase. As a result, the market will remain highly price-sensitive, and sellers will need to price their properties attractively to secure a sale, particularly in light of a decade-high number of homes for sale.

Bannister explained, “The momentum we’ve seen in the housing market this year, despite the challenges, looks set to continue into 2025. The key factor will be the speed and scale of mortgage rate cuts, which will play a critical role in boosting affordability and encouraging more movers into the market. If rates fall more rapidly, we could see an even more pronounced recovery.”

While the national market shows promise for recovery, there are clear regional variations expected. London, which has underperformed relative to the rest of the UK in recent years, is forecast to be the standout performer in 2025. Estate agency Hamptons predicts that house prices in London will rise by 4% in 2025, the highest of any region, marking the first time in nearly a decade that the capital has outpaced other regions in terms of annual price growth.

Hamptons’ forecast indicates that a variety of factors, such as international buyers returning to the market and domestic buyers capitalizing on more affordable mortgage rates, will drive the demand for London properties. The appeal of London as an investment hotspot remains strong, particularly in the high-end market, and this could drive the overall market performance in the city.

Despite these predictions for price growth, the market remains highly price-sensitive, with affordability continuing to be a key concern for both buyers and sellers. Rightmove notes that competition among sellers is fierce, with a large supply of properties coming to market in the run-up to Christmas. Due to this oversupply, sellers must carefully price their homes to stay competitive in a crowded marketplace.

Moreover, despite the expected decline in mortgage rates, they are likely to stay higher than the ultra-low rates observed during the pandemic. This means that many buyers, especially first-time buyers, may still struggle with affordability, particularly in high-demand areas. For sellers, this means that they may have to wait longer to achieve their desired sale price or be prepared to lower their expectations to secure a buyer.

Looking further ahead, forecasts suggest a gradual increase in UK house prices, though at a moderate pace. According to other data released this week, house prices are expected to rise by 3% in 2025, followed by 3.5% in 2026 and 2.7% in 2027. If these projections hold, the average UK house price could reach around £300,000 by 2025—approximately £10,000 higher than current levels.

However, the path to these price increases will be anything but straightforward. As Bannister notes, “The speed at which mortgage rates come down and how quickly buyers can adjust to the new financial landscape will determine whether these price increases come to fruition as expected. The housing market will remain dynamic and responsive to both economic conditions and consumer sentiment.” While the UK property market faces a challenging autumn, with seasonal price drops and buyer hesitation, there is significant hope for recovery in 2025. A more affordable mortgage landscape and a better balance between supply and demand could lead to a positive outlook for home prices, particularly in London and other high-demand areas. For now, both buyers and sellers will need to be strategic as the market navigates these shifting conditions.

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