The UK housing market is expected to be busy next year with Rightmove forecasting 1.15 million transactions. The strong demand in the market is forecasted due to the lower cost of borrowing and rising rental costs. However, cheaper borrowing will be the number one reason for motivating home buyers and home movers to shop for property.

The Bank of England’s Monetary Policy Committee (MPC) has lowered the standard base interest rate twice this year, once in August and then again in November. The rate has fallen from a 16-year high of 5.25% to 4.75% as both cuts were at 0.25%. While there is not another rate cut expected this month at the December MPC meeting, the forecast is for the rate to reach a low of 3.75% by the end of next year.

Despite there being low expectations of a rate cut in December, there is still a small possibility. Until the last inflation report was released, the third rate cut of 2024 was likely, but inflation grew from 1.7% to 2.3% in the twelve months to October as reported in November. The steep growth of inflation ruled out the possibility of another rate cut for many experts. The next inflation report will be released on 18 December, one day prior to the MPC meeting on 19 December, and if it returns to below the target of 2.0%, the MPC could deliver a surprise decision to close out the year.

The first MPC meeting of 2025 is scheduled for February. Therefore, the December meeting decision is to either keep the rate steady at 4.75% or issue a cut that will hold for several weeks. 

The first quarter of the year is forecasted to be a busy time for the housing market as the stamp duty discount will end on 31 March. The rate at which tax will be charged for a home purchase will lower to normal and more home buyers will be paying stamp duty as of 1 April. The ability to take advantage of the discount is likely to motivate buyers to buy along with the possibility of finding cheaper interest rates.

Tim Bannister, of Rightmove, remarked, “Stamp duty charges rising from 1st April means we are likely to see a particularly busy first three months of the year as first-time buyers, home-movers and investors all try to complete on planned purchases and avoid higher charges.

“The effects of stamp duty rising will be felt for the rest of the year too, and we may see some negotiation tactics play out, particularly on properties close to the £300,000 mark, as both buyers and sellers try to mitigate their higher costs through the price agreed.” 

Lenders have already been offering low mortgage and remortgage interest rates as confidence in the economy and further rate cuts by the MPC are forecasted.

The expected increased supply of homes on the market will help bring buyers to the market as it will drive sellers to be more competitive in their asking prices. The higher volume will also offer first-time buyers the ability to be creative in their approach to homeownership. Being able to buy property that is cheaper due to needing improvements or upgrades helps with affordability. 

Rightmove predicted the average five- and two-year fixed mortgage deals will be around 4.0% by the end of 2025, which is lower than the current average of near 5.0%. Experts caution buyers that while rates will lower, they will not reduce to the historically low levels offered during the pandemic. 

Mortgages will be in strong demand from home buyers, but so will remortgages be important for homeowners in 2025. There are over one million homeowners coming to the end of their current mortgage term next year. Some will come to the end of their five-year fixed deal obtained when rates were historically low and will experience substantially higher costs in their repayments. It will be important for them to shop for the best possible interest rate to avoid financial shock to their household budget. 

However, there will be homeowners coming to the end of a two-year fixed deal that will experience savings by remortgaging at current rates.

The coming year’s forecasts for the housing market, lending, inflation, and the economy overall are much more optimistic in comparison to the forecasts issued last year for 2024.