UK Housing Market Predictions for 2025

Now that 2025 is in full swing, the UK housing market remains a key topic of interest for homeowners, buyers, and investors alike. With shifting economic conditions, evolving government policies, and changing buyer behaviour, understanding the trends shaping the market is more important than ever. 

In this blog, we’ll explore the key predictions for the UK property market in 2025 that you’ll need to know, whether you’re preparing to step onto the property ladder or simply seeking guidance on navigating the year ahead in the housing sector.

Key Trends

• Economic Changes
• Rise in Cash Sales
• Regional Disparities
• Government Schemes and Incentives
• Biggest Challenges in 2025

Economic Changes

The economic landscape in 2025 is expected to play a significant role in the UK housing market. With inflation gradually stabilising — having significantly fallen from its peak in October 2022 — the Bank of England (BoE) has started easing interest rates for the first time since 2020. After almost one year at 5.25%, the bank rate lowered to 5% in August 2024 and then 4.75% the following November, but remained unchanged in December.

Experts suggest that while rates may decrease this year, reductions will likely fall gradually, leaving buyers uncertain about how much financial relief they will experience. January 2025 also saw a mixed response from mortgage lenders, with some reducing rates while others increased them.

Rob Harrison, Director of SmoothSale, commented: “Interest rates still remain high compared to historical averages, and higher borrowing costs can reduce affordability and disproportionately impact first-time buyers. Paired with Stamp Duty changing in April this year, we expect demand to continue to dampen.”

At present, first-time buyers are exempt from Stamp Duty Land Tax on properties up to £425,000, but this threshold is set to decrease to £300,000. While this adjustment will affect those already on the property ladder (for who the threshold will lower from £250,000 to £125,000), first-time buyers are expected to feel the greatest impact.

Additionally, many UK homeowners still face rising mortgage costs. The BoE’s Financial Stability Report from November 2024 revealed that half of UK mortgage holders could see their payments increase over the next three years due to higher borrowing costs. Even if interest rates start to fall, lenders may not immediately lower mortgage rates, meaning buyers and homeowners could still face rising costs in the near term.

Rise in Cash Sales

Cash sales are expected to surge in 2025, driven by several market dynamics. With mortgage rates remaining higher than pre-pandemic levels, despite recent reductions, buyers who can avoid borrowing may find themselves in a stronger position.

Cash buyers often have a competitive edge in securing properties, as they bypass any delays and uncertainties associated with financing, making them particularly attractive to sellers in a competitive market. It’s also recently been cited that cash buyers typically pay £28,189 less than a mortgaged buyer per property.

Rob Harrison said: “Persistently high interest rates mean that cash-buyers are gaining a competitive edge as they’re able to avoid expensive borrowing. They represented a higher-than-normal proportion of cash sales in 2024, and we can expect to see this continue in 2025.

“We also expect to see overseas investors and retirees contribute to cash-buyer demand. Cash-buying companies are becoming more important due to increasing numbers of repossessions.”

According to UK Finance, the number of homeowner-mortgaged properties repossessed in the first quarter of 2024 increased by over a third compared with the previous three months. We predict this problem will unfortunately grow further in 2025.

Additionally, more property listings and a slowdown in price growth in some regions may present opportunities for investors and downsizers to leverage their cash reserves.

As a result, cash sales are likely to remain a prominent feature of the housing market throughout 2025!

Regional Disparities

Regional contrasts in the UK housing market are expected to widen in 2025, driven by differences in property affordability, local economies, and infrastructure investment.

London and the South East faced slower growth in house sales due to high property prices and affordability challenges — the average house price in London reached £519,579 in October 2024! However, the North West, specifically Manchester, is predicted to thrive.

Rob Harrison said: “We expect northern cities like Manchester to continue to see house price growth and faster sale times fuelled by employment growth and infrastructure projects.”

The northern city is experiencing significant regeneration across the city centre and its surrounding areas, creating numerous opportunities for property investment. A key development is the regeneration of the Red Bank area, with plans to build over 1,500 new homes by the end of the next decade.

Additionally, recent data from ONS shows that the average house price across the North West rose by 5.7% between November 2023 and November 2024, which is likely to increase further in 2025.

In other regions, such as Scotland, demand is now steadying as buyers prioritise affordability, space, and quality of life. Driven by an efficient home-buying process and greater affordability compared to England, Scotland’s streamlined transaction system results in faster sales and fewer fall-throughs, giving buyers more confidence in the market. According to stats from Estate Agent Today, with the average house price in Scotland significantly lower than in England (£195,000 vs. £306,000), homeownership is more accessible — particularly for first-time buyers.

Understanding these regional dynamics and changes is key to successfully navigating the evolving UK property market.

Government Schemes and Incentives

In 2025, government schemes and incentives will remain crucial in shaping the UK housing market. Initiatives such as the First Homes scheme and Help to Build are designed to support first-time buyers and self-builders, making homeownership more attainable. Additionally, efforts to increase housing supply, including reforms to planning laws and investment in building on brownfield land (previously developed that is no longer in use) and green belt land (protected from urban development), aim to address affordability challenges and meet the rising demand for homes.

In December 2024, the National Planning Policy Framework (NPPF) underwent significant revisions concerning green belt policies to address housing shortages and promote sustainable development. These changes allow the reclassification of lower-quality green belt areas to facilitate development while preserving more valuable green spaces.

Another incentive,  The Future Homes Standard (FHS) will become mandatory in 2025. It aims to ensure that new homes built in 2025 will produce 75-80% less carbon emissions than homes built under the current Building Regulations.

Rob Harrison commented: “The FHS is set to be a game-changer for homebuyers, particularly those looking to get on the property ladder this year. With a focus on energy efficiency and lower running costs, new-build homes constructed under the FHS will be more sustainable and affordable to maintain.”

The FHS’s emphasis on decarbonising new homes by focusing on improved heating, hot water systems, and reducing heat waste is particularly relevant for densely populated regions like London and the South East, where the push for sustainable urban living is strong.

Biggest Challenges in 2025

Despite many positive developments, affordability remains a significant concern for homebuyers. According to a Nationwide report, 40% of first-time buyers still rely on financial assistance for deposits, often from family or friends.

Rob Harrison said: “With the house price-to-income ratio reaching its highest level on record, mortgage terms are increasingly being extended, reflecting the growing difficulty buyers face in securing affordable home loans.”

The Times recently reported that first-time buyers with a 20% deposit still spend around 36% of their monthly income on mortgage payments—significantly higher than the long-term average of 30% deposits. As a result, the financial strain on first-time buyers is becoming increasingly unsustainable, highlighting the need for continued support and market adjustments.

As we move through 2025, the UK housing market will present both challenges and opportunities. While rising interest rates and affordability issues may slow demand, initiatives like the Future Homes Standard and government support for first-time buyers will provide valuable incentives. Regional disparities will continue, with northern areas like Manchester seeing growth, while the South East may face slower progress due to high prices and planning restrictions. Staying informed and making the most of these available schemes will be key to navigating the market this year.