The UK housing market has seen a record number of new sellers since Boxing Day, with average property prices rising by 1.7% to £366,189 this month, according to the recently released data from Rightmove. This marks the largest price increase at the start of the year since 2020. Falling interest rates, which may continue to drop as confidence grows for a rate cut by the Bank of England’s Monetary Policy Committee (MPC), will motivate hopeful home buyers. However, prices remain nearly £9,000 below the peak in May 2024 due to affordability constraints.

The number of new properties coming to market was 11% higher than a year earlier while the number of buyers contacting agents about properties for sale since Boxing Day is 9% ahead of last year, and the number of sales being agreed over the same period is up by 11%.

The average number of homes listed for sale per estate agency branch is at its highest level for this time of year in a decade, with sellers competing to attract buyers as the new year begins. According to Rightmove, some sellers may have set their initial prices too optimistically and risk being overlooked by potential buyers.

“New sellers have started the year with a bang,” remarked Colleen Babcock, property expert at Rightmove. “We’ve seen a strong start in new seller asking prices, but we expect this to slow down due to higher-than-anticipated seller competition.” 

Rightmove forecasts 1.15 million transactions this year and an average asking price increase of 4%. A strong housing market is important to the UK economy, but house prices have remained elevated since the pandemic caused a boost in the housing market to break records month after month. Further growth in the housing market will need to be watched closely as it could impact affordability.

However, uncertainties remain, such as interest rate cuts from the Bank of England and changes to stamp duty on 1 April. First-time buyers in cheaper areas will largely be unaffected by the tax-free threshold drop to £300,000. Yet, rising stamp duty for purchases above this threshold could impact more expensive areas unless additional support for first-time buyers is provided soon, Rightmove said.

Mortgage rates have stayed high, with fixed-rate deals under 4% almost gone. Rightmove reports a current average five-year fixed mortgage rate of 4.75%, close to last year's 4.78%. The two-year fixed rate is now 4.97%, slightly lower than last year's 5.08%.

Due to December's unexpected drop in UK inflation and minimal economic growth in November, market expectations shifted, anticipating two or three quarter-point interest rate cuts this year. A recent sell-off in government bonds briefly raised yields sharply, though they soon settled back down.

All eyes will be the first scheduled meeting of the MPC for 2025. On 6 February, despite the slight drop to inflation, the committee is expected to hold the rate steady for another month. This might be seen by lenders as a cautious decision to bring inflation closer to the target of 2.0% or it could be interpreted as the MPC is expecting to allow the current rate of 4.75% to remain for months to come. This is why borrowers have a decision to either shop for a mortgage or remortgage now or hope for better rates to come in the near future.

It should be noted that the start of the year mirrors that of last year when the first rate cut of the year was forecasted for the first quarter of the year, and yet it did not happen until August 2024. Borrowers, including homeowners and home buyers, will need to carefully consider whether to borrow now or later, and waiting for better rates could end up with the wait being much later.