After the number of first-time buyers hit a record low in 2023, the UK housing market had a resurgence in 2024, particularly for first-time buyers. Now looking ahead to the remainder of 2025, the market appears poised for a steady increase in prices.
The housing market in 2025 has a complex economic landscape shaped by lingering inflation and geopolitical events, with mortgage rates expected to stay within the 4-5% range. First-time buyers still face affordability challenges, and the fundamental issue of demand outstripping supply remains, especially in London.
What will house prices look like in the 2025 housing market?
Prices are set to keep increasing in the UK’s housing market in 2025.
In February, the average house price was £268,000. In London, it was significantly higher at £556,000. In March, however, house prices were stagnant at an average of £271,316, with London recording the lowest growth at 1.9%.
Experts suggest this flatlining was due to a slowdown of activity after buyers rush to complete purchases before the new Stamp Duty rules came into effect.
Looking ahead to the rest of the year, house prices are generally expected to continue increasing through 2025. Experts anticipate* a steady rise between 2-4%, driven by strong housing demand and potentially lower mortgage rates later in the year.
The Labour government’s ambitious targets for building 1.5 million homes within 5 years through planning reform aim to address the supply-demand imbalance that has driven up prices. The Chancellor has recently announced a £2bn boost to the Affordable Homes Programme, aiming to fund up to 18,000 new social and affordable homes. However, the immediate impact of the government's policies on house prices is unlikely to be felt in 2025, particularly with potential challenges in the construction sector.
*House Price Growth Predictions 2025:
- OBR: 1.1%
- Nationwide: 2- 4%
- Knight Frank: 2.5%
- Zoopla: 2.5%
- Savills: 4%
What will mortgage rates look like in 2025?
Mortgage affordability is another factor, with the current base rate at 4.5%. The Bank of England’s anticipated gradual reduction of the base rate throughout the year could ease mortgage affordability and boost demand, though upward pressure on global market interest rates might temper significant drops, likely settling the rate in the 4-5% range.
In March, the inflation rate dropped to 2.6%, which will renew calls for the Bank of England to lower interest rates. However, for the time being affordability will be the number one issue facing first-time buyers in 2025.
What will renting costs look like in 2025?
In 2025, UK rental costs are expected to continue rising, as they have done since 2021 post-COVID, although the pace of increase may slow compared to recent years.
According to the Office for National Statistics, the average monthly rent in England rose to £1,386 in the 12 months to March 2025, an annual increase of 7.8%. This marks a slight easing compared to the 12 months to February 2025, when UK-wide rent inflation was 8.1%. Despite the slowdown, the figures indicate continued pressure in the rental market following the record-high annual growth of 9.1% recorded in the 12 months to March 2024.
The ONS also notes that while inflation in private rents has eased slightly, overall rent levels remain historically high.
Renters are facing a tricky situation as rents have gone up significantly, making it hard and in some cases impossible to save up for a deposit. If buying could result in cheaper monthly payments towards a mortgage, a lack of savings is preventing prospective buyers from stepping onto the property ladder.
What will the 2025 housing market be like in London?
You'll be surprised to hear that London again tops the list of the most expensive cities to buy a home in the UK. The average price for a home in London was £564,000 in January 2025 according to the UK House Index.
Rents are also highly likely to keep rising. According to the new ONS Price Index of Private Rents, the average monthly private rent in London reached £2,227 in January 2025, an increase of 11% in the last year.
Recent Stamp Duty changes mean that the threshold for relief for first time buyers has been reduced from £425,000 to £300,000. Given that the vast majority properties in London are worth more than £300,000, many new buyers will be hit by the changes and need to plan accordingly.
What does the 2025 housing market mean for prospective first-time buyers?
For prospective homebuyers in 2025, the market presents a more encouraging picture with an increase in low-depost (5-10%) mortgage availability, reaching levels not seen since the 2008 crisis. This offers a boost to those who have found saving a deposit challenging due to the high cost of renting.
However, despite this wider selection, average mortgage rates remain notably above 5% for low-deposit borrowers. The overall mortgage rate landscape also faces unpredictability due to wider economic uncertainties, including US trade policy, making precise forecasts tricky.
Alternative ways to buy a first home are a great avenue to explore. Buying schemes such as Shared Ownership, allow people with lower affordability to get onto the property ladder despite the obstacles present in the current housing market like the requirement for large deposits.
Frequently asked questions about the housing market in 2025
Unlikely. Based on current housing market predictions, prices are expected to keep rising in 2025, not fall. Experts anticipate increases of 2% to 4% due to factors like lower mortgage rates stimulating activity and a resilient housing market despite affordability challenges.
In 2025, the average house price in London is likely to be around £556,000, with a potential increase of 1.7% compared to the previous year. However, this figure can vary significantly depending on the property type (e.g. detached, semi-detached, flat) and location within London. For example, detached houses average around £1,147,000, while flats average around £449,000.
Yes, it's a good time to buy a house if you can afford it, and you buy a home you plan to live in for several years. House prices are expected to trend higher in 2025, so if you buy now, it may be cheaper than if you wait. There are also housing schemes which can help you get on the property ladder in 2025, such as Shared Ownership. This lets you buy a share of a home (usually starting from 25%), which means you only need a deposit on the share.
It is unlikely for the housing market to crash in 2025. However, price growth may slow and there is potential for price drops in certain areas, especially in the wake of the current economic uncertainty (US tariffs threats and possibility of recession) and high mortgage rates.
