The UK housing market in 2025 is poised for a year of sustained demand and continued growth in average house prices, driven by a combination of favorable factors that promise to keep the market buoyant. Lower mortgage interest rates offered by lenders and rising wages are expected to play a significant role in maintaining elevated levels of buyer interest and activity throughout the year. The favorable factors will also contribute to high demand from homeowners seeking lower interest rate remortgages in the new year.

Recent data from Halifax, the UK’s largest mortgage lender, highlights the upward trajectory of house prices, with the average cost of a home reaching just under £300,000 following a 1.3% increase in November. This trend is indicative of the broader market's resilience and the persistent demand for housing across the country. Regionally, the disparities in average house prices remain pronounced, with Scotland and Northern Ireland seeing average prices around £200,000, while London continues to lead with an average house price of £545,439. These figures underscore the varying dynamics across various parts of the UK, with some regions experiencing more intense pressures on housing affordability than others.

The beginning of the new year is anticipated to inject additional momentum into the already thriving housing market. A key factor contributing to this boost is the return of stamp duty thresholds to their previous lower levels, a measure initially introduced to help buyers enter the market. This change is expected to prompt a surge in buyer activity as individuals seek to finalize their purchases before the stamp duty holiday concludes on 31 March. The prospect of saving money on stamp duty is likely to create a sense of urgency among buyers, leading to a flurry of transactions in the early part of the year.

However, this initial boost may be followed by a temporary slowdown in the months following the end of the stamp duty holiday. Despite this potential dip in activity, buyers are not expected to be significantly deterred by the reintroduction of higher stamp duty rates. This is largely due to the anticipated cuts in the base interest rate by the Bank of England's Monetary Policy Committee (MPC), which could occur as early as the second quarter of 2025. Currently, the base rate stands at 4.75%, and a reduction in this rate would likely result in lower mortgage rates for borrowers, further stimulating demand in the housing market.

The economic backdrop to these developments includes the recent trends in inflation. The latest inflation report for the twelve months to November indicated an increase to 2.6%, up from the previous month's growth of 2.3%, which itself had risen from 1.7%. With inflation consistently exceeding the Bank of England's target of 2.0%, the MPC's decision to hold the base rate steady at their December meeting was unsurprising. This cautious approach allows for inflation to potentially stabilize against the current interest rate environment, setting the stage for future rate cuts that could further support the housing market.

The next MPC meeting, scheduled for February, will be crucial in determining the trajectory of monetary policy for the remainder of the year. Should inflation begin to stabilize, it could pave the way for the first base rate cut of 2025, likely leading to lower lending rates for borrowers. Such a move would be a welcome relief for prospective homebuyers and could help maintain the momentum in the housing market by making mortgages more affordable.

As 2025 progresses, the UK housing market is expected to navigate a complex interplay of factors that will shape its overall performance. While the end of the stamp duty holiday may introduce some volatility in the short term, the broader outlook remains positive, buoyed by expectations of lower mortgage rates and rising wages. The resilience of the market will also be influenced by broader economic conditions, including employment trends and consumer confidence, which play critical roles in driving housing demand.

The combination of these elements suggests that the UK housing market will continue to experience robust activity and price growth in 2025, albeit with some fluctuations in response to policy changes and economic shifts. Buyers and sellers alike will need to stay attuned to these developments, as they navigate a dynamic and evolving market landscape. Ultimately, the ongoing interplay between monetary policy, economic conditions, and housing market trends will define the contours of the UK housing market in the coming year, presenting both opportunities and challenges for all stakeholders involved.