In a recent poll by Reuters, housing market experts forecasted that house prices will increase and do so as rental costs rise higher. Housing overall will become more expensive, however it is expected that first time homebuyers will still have a chance in the market. Higher rental costs will make it difficult for buyers to save for their deposit, so lower interest rates will need to make the difference in affordability. 

The average house price is expected to increase by 3.1% next year, and another 4.0% in 2026. Expectations for inflation are for an average of 2.3% in 2025 and 2.1% in 2026, meaning house price increases will outpace expected inflation.

According to the Office for National Statistics (ONS), the average house price in September increased by 2.9% annually to £292,000. This is the fastest pace for house price increases since February 2023.

The outlook for the cost of renting is an increase of 4% to 5% next year, which is higher than that of expected house price increases making the dream of becoming a homeowner have a tighter grip than just hopes and dreams, for financially it could save money.

The opportunity to borrow at cheaper rates is what will motivate not only home buyers in 2025, but also homeowners seeking a remortgage. 

The Bank of England’s Monetary Policy Committee (MPC) voted twice this year to lower the standard base rate. It marks the first time rates were lowered since March 2020. It was then that the MPC lowered the base rate due to the impact from the global pandemic. The rate was cut to almost zero at 0.1% and remained until December 2021. 

The base rate was raised to more than double to 0.25%. The MPC voted for a rate hike during each consecutive meeting until September 2023 when the committee voted to hold the rate steady at 5.25%. As inflation fell closer to the target rate of 2.0%, the MPC voted in August of this year for the first cut of 0.25%, taking the sixteen-year high to 5.0%.

The second reduction in 2024 was voted for this month, with another cut of 0.25% taking the rate to 4.75%.

The hopes of another cut this year were dashed when the inflation report for October, which was released this month, revealed an increase from 1.7%, below target of 2.0%, to 2.3%. Experts believe the MPC will refrain from another rate cut and the December meeting on the 19th will result in a vote to hold the base rate steady. Since there is not a scheduled MPC meeting for January, the decision of the MPC will remain until February.

Another report on inflation will be released on 18 December, the day before the final MPC meeting of the year. Even if inflation shows a reversal and declines toward the target, few experts believe it would trigger a third reduction of the base rate for the final month of the year. Instead, the rate will likely remain, and should inflation become more predictable it could bring about the first rate cut in 2025 by the end of the first quarter.

The most optimistic forecast is one of the base rate reaching 3.75% by the end of 2025, which would indeed assist first time home buyers onto the property ladder. A robust housing market will be important to the UK economy in the coming year and for renters facing higher costs.