The December housing market data revealed a slight drop in the average house price. It was the first decline recorded since March 2024. However, despite the data released by Halifax, it is considered a temporary drop as the expectation is for a boost in the market in the first quarter of 2025. Halifax reported a 0.2% decline in December from November, with an increase of 3.3% annually, yet still less than the 4.7% annual increase recorded in November. 

The forecast of a boost in buyer demand is due to the return of the normal threshold on stamp duty charges. In 2022, the threshold was increased to allow savings for home buyers. At the end of March, the discount will end. This is likely to motivate home buyers to complete their purchase before 1 April to secure the possible savings.

Stamp duty savings along with lower mortgage rates, rising wages, lower inflation, and an increase in consumer confidence could prove to give a markable boost to the housing market. However, what comes after that will have to be carefully considered as data is released in the second quarter of the year. 

A decline in the demand from home buyers could simply be a natural correction after the rush to buy before the stamp duty discount expired. However, it could be the start of a slowdown in the market as mortgage rates stabilize or if they rise due to inflation remaining above target.

Inflation dropped below the Bank’s target of 2.0% in September to 1.7%. However, in October it grew to 2.3% and then to 2.6% in November. The December inflation report will be released on 15 of January. The result of that report will influence the February meeting of the Bank of England’s Monetary Policy Committee (MPC). The forecast is for inflation to increase which will likely result in the MPC holding the current base rate of 4.75% steady. 

Meanwhile, the overall forecast for the standard base interest rate is for possibly three cuts to the rate in 2025. However, with inflation climbing, the first rate cut of the year is less likely to be in the first quarter. This reveals why the stamp duty rush could help to hold demand in the housing market while the MPC set base rate works on inflation. 

The key to keeping attention on the housing market by hopeful home buyers will be mortgage rates. 

In response to the recently released data, Amanda Bryden, head of mortgages at Halifax, remarked, “In many areas across the country, house prices were also buoyed by demand outstripping supply, possibly further amplified by homeowners holding off putting their property on the market, perhaps in anticipation of mortgage rates reducing further.”

She added, “While the housing market has been supported in recent months by falling mortgage rates, income growth and the announcement on upcoming stamp duty policy changes, mortgage affordability will remain a challenge for many, especially as the bank rate is likely to come down more slowly than previously predicted.

“However, providing employment conditions don’t deteriorate markedly from a more recent softening, buyer demand should hold up relatively well and, taking all this into account, we’re continuing to anticipate modest house price growth this year.”

There is not a MPC meeting scheduled for January, the first one since December will be 6 February. As inflation reports are an influence on the MPC decision, the growth or decline over the next few months will determine the actions of the MPC and will in turn influence the actions of home buyers.