After a chaotic couple of years, the mortgage market is starting to show some signs of stabilising.
Fixed rates have been volatile in recent weeks with uncertainty as to when interest rates may move next, although they are much lower than they were at the start of 2024, giving buyers and homeowners looking to remortgage the chance to bag a competitive deal.
But if you’re planning to purchase a new property, or to remortgage your home, there’s another significant question mark looming over next year: what can we expect from property prices?
Despite expectations that they might flatline in 2023, UK house prices ended up increasing by 4.8% across 2024 according to Halifax, with the average property rising to a record high of £298,083.
Amanda Bryden, Head of Halifax Mortgages, said: “The market remained largely flat until the summer, with most of that growth concentrated in the second half of the year. Two key factors have driven the recovery in the housing market over the last 12 months. The first is lower mortgage rates, at times up to 160 basis points below the peaks of 2022 and 2023.
“Second is that income growth continues to catch up with the consumer price increases of the past few years. For new mortgages, monthly costs as a percentage of earnings fell from 33% to 29% over the last year. This easing financial pressure has boosted buyer confidence as demand for mortgages reached its highest level in more than two years, with volumes now back in line with pre-pandemic levels, having trailed by around 20% at the start of the year.”
In this article, we’ll take a look at what could happen to house prices in 2025, review what experts are saying, and outline what house price movements could mean for you, whether you’re planning to buy, sell or remortgage.
What will happen to house prices this year?
Unfortunately, without the aid of a crystal ball, it’s impossible for anyone to say for sure whether the average property price will go up or down in 2025, especially as there are a whole host of factors that influence the way prices move.
That said, both government forecasts and lenders seem to agree that average prices may rise modestly over the course of the year. Interest rates are slowly starting to ease and inflation, despite a jump to 2.6% in the year to November, is much nearer to the government’s 2% target than it was this time last year.
Robert Gardner, chief economist at Nationwide, said: “Upcoming changes to Stamp Duty are likely to generate volatility, as buyers bring forward their purchases to avoid the additional tax. This will lead to a jump in transactions in the first three months of 2025 (especially in March) and a corresponding period of weakness in the following three to six months, as occurred in the wake of previous stamp duty changes. This will make it more difficult to discern the underlying strength of the market.
“But, providing the economy continues to recover steadily, as we expect, the underlying pace of housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth, where the latter is likely to remain broadly in the 2-4% range in 2025.”
Read more about Stamp Duty changes in our guide What is happening to Stamp Duty in 2025?
A dramatic fall in prices appears unlikely due to there being a limited number of properties for sale, which means demand for homes remains high.
Estate agency Knight Frank predicts house prices will rise by 2.5% across 2025, slightly lower than previous forecasts.
A spokesman for Knight Frank, said: “We now expect average UK house price growth of 2.5% in 2025, 3% in 2026, and 3.5% in 2027 down from our August forecast of 3%, 4% and 5%. Over the five-year period, we expect cumulative growth of 19.3%, which compares to an equivalent figure of 20.5% three months ago. That makes us a touch more bearish than peers, at least through to the end of 2026, according to a Reuters tally of 21 housing analysts.”
Mortgage approvals for purchases rose from 66,115 in September to 68,300 in October, according to the Bank of England, though it’s unclear whether this trend will continue across 2025.
What should I do if house prices go up this year?
If house prices increase again year-on-year, for example because demand increases, then sellers may have a better chance of selling their homes at a higher price. Buyers, of course, would get the short end of the stick here. Property is already in short supply, so prices creeping even higher could put the dream of a new home further out of reach for many people, particularly when combined with other factors such as steep rents, high inflation and interest rates, and strict affordability criteria.
Can I remortgage if my house increases in value?
As you might expect, while falling property prices put remortgage customers in a weaker position, the opposite is also true: should the value of your property increase, you should be able to access better deals when you come to remortgage, as you’ll own a greater proportion of equity in your home.
If you’re worried about house prices going down over the next 12 months and are coming to the end of your mortgage deal, then now could be the perfect time to start looking for a new mortgage deal. Read our article Five good reasons to remortgage right now to learn more.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
What should I do if house prices go down in 2025?
If house prices go down in 2025 for any reason, this would be broadly good news for buyers, but bad news for sellers.
If demand does stay relatively low and prices dip, it could be an ideal time to strike from a buyer’s perspective, provided you can bag a good mortgage deal in the process.
The other side of this is that homeowners looking to sell may find it harder to get the price they’re looking for. A prospective home mover could find a great deal on a new home, but may have to delay or cancel the purchase – or have to offer a considerable discount of their own if they can’t sell their current property to fund the move.
Can I remortgage if my house decreases in value?
There’s nothing stopping you from remortgaging just because your property has gone down in value since you purchased it, though it can make your borrowing costs more expensive.
That’s because a lower property price can push you into a higher loan-to-value (LTV) bracket, which limits the number of remortgage deals you will be eligible for, unless you elect to overpay your existing mortgage to compensate. Put simply, the lower the loan-to-value bracket you fall into, the wider the choice of lower cost remortgage options you’ll have, whereas the higher the amount you need to borrow relative to the property’s value, the lower the number of mortgage options you’ll have access to at competitive rates.
Even if falling prices do push you into a higher loan-to-value band, it’s still a good idea to take a look at your mortgage options and try and grab a new fixed rate deal so that you don’t end up rolling onto your lender’s Standard Variable Rate, which is usually much more expensive than other mortgage rates and likely to massively bump up your monthly payments.
It’s also really important to remember that even if house prices decrease over the next 12 months, this doesn’t mean that your house has gone down in value overall. If, for example, you purchased your house five years ago, it will almost certainly have increased in value between then and now thanks to the boom in property prices over the last few years, and even a 4% or 5% decrease in average prices over the next 12 months is unlikely to offset this.
In the event that the value of your property falls below the amount you have left to pay on your mortgage, you’d end up in a position of what’s known as negative equity, and be unable to remortgage at all. According to the government’s Moneyhelper website, it’s estimated that there are currently around half a million properties in negative equity in the UK, although some areas are affected more than others.
Want to speak to a mortgage advisor? Speaking to an experienced mortgage advisor can help you to understand your options and get a great deal on your mortgage.
If you’re looking for expert mortgage advice, you can get a free consultation with an independent mortgage adviser at Fidelius. Speak with a qualified, FCA-regulated, independent mortgage adviser you can trust. Rated 4.7/5 on VouchedFor from over 1,250 reviews.
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