Higher incomes and stabilising rates set to further drive housing market recovery
UK house prices and sales volumes are forecast to grow in 2025, despite ongoing budget pressures, according to the latest Zoopla House Price Index.
The property listing website also revealed that the average house price is now £267,200, reflecting a 1.5% increase over the past 12 months — equivalent to a £3,900 rise.
The UK housing market saw a return to growth in 2024, with average house prices rising by 1.5% in the year to October 2024, compared to a decline of 1.2% a year earlier.
Zoopla forecasts that housing transactions will increase by 5% next year, reaching 1.15 million sales. This follows an expected 1.1 million completions in 2024, 10% higher than in 2023. Recent market activity supports this outlook, with sales agreed over the past four weeks up 19% year-on-year and buyer demand rising by 25% over the same period.
A robust sales pipeline — 30% larger than this time last year — should sustain activity in early 2025. Postponed home moves, changing work patterns, and the desire for better homes or locations will continue to influence buying decisions. First-time buyers are expected to remain the largest buyer group, playing a key role in sustaining housing chains.
Rising incomes have helped to improve housing affordability in 2024, despite elevated mortgage rates. According to the Office for Budget Responsibility, household disposable incomes increased by 15% between Q2 2022 and Q2 2024, while house prices rose by just 1.5% over the same period. This trend has reduced the over-valuation in property prices reported by Zoopla last year, when UK homes were estimated to be overvalued by 16% due to higher mortgage rates.
Zoopla’s analysis indicates that the market has largely adjusted to the higher borrowing costs, with mortgage rates stabilising and incomes rising. House prices are now expected to grow modestly by 2.5% in 2025, assuming mortgage rates average 4.25% over the year.
The north-south divide in house price growth is set to continue in 2025, reflecting better affordability and access to housing outside southern England. Northern regions, such as Oldham (+3.7%), Wigan (+3.9%), and Belfast (+6.5%), have recorded some of the fastest price increases.
By contrast, southern areas like Ipswich (-1.1%), Truro (-1.2%), and Dartford (-1.2%) are still seeing modest declines in house prices. Incomes will need to rise faster than house prices to further improve affordability in these areas, according to Zoopla.
“The housing market has been resilient in the face of higher borrowing costs over the last two years,” said Richard Donnell (pictured), executive director at Zoopla. “Higher income growth and lower mortgage rates have helped reset housing affordability faster than many expected over 2024. This has supported an increase in the number of sales and house prices over the year which we expect to continue over 2025.
“First-time buyers will remain an important buyer group but existing homeowners looking to move will need more support to help realise their ambitions, with more and more having to look further afield to find better value for money.”
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