Savills has forecast robust average UK house price growth of 4% this year fuelled by falling mortgage costs, while Knight Frank says prices will “come under pressure” in 2025 and has cut its growth prediction to 2.5%.
The diverging views on the market between the two property agents over the year ahead come as house prices in 2024 lifted 3.3%, according to the latest Halifax house price index.
The lender said prices in the second half of the year “grew in response to the falls in mortgage rates, alongside income growth”.
Savills head of residential research Lucian Cook says the agency is “confident that 2025 will be a positive year” for house prices.
Cook adds: “The direction of mortgage rates has been key to buyer decisions over the past two years, and decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.”
Savills argues that lower levels of homeworking and the need to return to commuter hotspots near cities and large towns “will continue to drive the stronger-than-expected performance in London over the past 12 months”.
Cook adds: “We expect to see some residual impact of the unwinding of the ‘race for space’ in 2025, bringing growth in the South West and East of England below that of the capital.”
But Savills points out that “recovery will not be uniform, with noticeable differences across buyer groups,” with spring acting as a dividing line.
In April, the current stamp duty threshold of £250,000 will halve to its previous level of £125,000, after Chancellor Rachel Reeves decided not to extend this temporary relief in her October Budget.
For first-time buyers, the stamp duty threshold falls to £300,000 from £425,000, while the maximum purchase price FTBs relief can be claimed on will fall to £500,000 from the current level of £625,000.
Cook points out: “FTB activity is expected to be front-loaded in 2025 as these buyers rush to beat the end of stamp duty concessions in March. While mortgaged home movers, who have held off moving due to a harsher mortgage rate environment, will also return to the market.
“In the first instance, this is likely to be driven by needs-based buyers, will more movers gradually returning as rates drop further.”
But Knight Frank has revised down house price growth to 2.5% from 3% in August due to a sluggish economy.
Knight Frank head of UK residential research Tom Bill says: “The current rate of house price growth will come under more pressure as higher borrowing costs triggered by the Budget start to bite.”
He adds his agency’s markdown “reflects the tougher lending landscape and the fact economic growth is struggling to gain momentum.”
Knight Frank points to manufacturing output, which fell at the fastest pace in 11 months last week, and official figures at the end of last year that showed that the economy failed to grow between July and September.
Bill says that current rising house prices are “out of sync” with the rest of the economy.
He says: “A number of buyers are sitting on sub-4% mortgage offers made before the Chancellor announced her economic plans on 30 October.
“Agreements are valid for up to six months, which means some will be insulated from the increase in borrowing costs triggered by the Budget.”
Last month, Bank of England governor Andrew Bailey said he expects four 0.25% “gradual” cuts next year, moving the base rate from its current 4.75% mark, with inflation at 2.6%, above the central bank’s 25 target.
But Bill says: “Financial markets are currently expecting between two and three quarter-point cuts to the bank rate by the end of 2025, which is about three fewer than they anticipated in September.”
Knight Frank adds that the April stamp duty changes will add up to £2,500 to household bills for home movers and up to £6,500 for FTBs.
Bill says: “With wage inflation still stubbornly high [5.2% between August and October], it has sparked speculation about the possibility of ‘stagflation’, a situation where economic growth is slow while prices and unemployment rise.
“The unenviable dilemma for a central bank in this situation is whether to cut rates in an attempt to boost growth or keep rates high to tame inflation.”
