UK House Prices Forecast to Grow Faster Than Many Expect
- Written by: Sam Coventry
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Despite recent signs of moderation, experts predict UK house prices could grow faster than many anticipate in the coming months.
While the Nationwide House Price Index indicates a slowdown in price growth in late 2024, key factors such as mortgage rate forecasts and policy changes could drive stronger-than-expected increases later in 2025 and beyond.
According to the latest data, the House Price Index rose slightly to 541.0 in January, up from 540.5 in December 2024. However, the monthly price change was a modest +0.1%, a sharp deceleration from the +0.7% growth seen in the previous month.
On an annual basis, house prices remain higher than a year ago, with a +4.1% increase compared to January 2024. However, this represents a decline from the +4.7% annual growth recorded in December, suggesting that the rapid price inflation seen in 2024 is beginning to ease.
Meanwhile, the average (unadjusted) house price fell slightly to £268,213, down from £269,426 in December. The small dip in average house prices highlights affordability challenges for buyers, as mortgage costs remain a significant barrier to entry.
Affordability Concerns Persist
Despite the slowdown in price growth, affordability remains a key issue for first-time buyers. Nationwide’s data suggests that mortgage payments for a typical first-time buyer purchasing a property with a 20% deposit now consume 36% of take-home pay, well above the long-term average of 30%.
Additionally, the house price-to-earnings ratio for first-time buyers stands at 5.0, much higher than the long-term average of 3.9, underscoring the difficulty of entering the property market without substantial financial support.
House Price Growth Expected to Accelerate
Alex Kerr, UK Economist at Capital Economics, suggests that house prices could grow faster than many expect.
He notes, "House price growth may remain muted over the next few months given that swap rates point to mortgage rates climbing higher. That said, prices may be supported by a potential surge in demand ahead of the expiry of the temporary increase to the stamp duty nil band thresholds after 31st March.
"Either way, our forecast that Bank Rate will be cut from 4.75% now to 3.50% in early 2026, rather than the low of 4.00% that investors currently anticipate, suggests mortgage rates will fall from 4.6% in December to around 4.0% in 2026. That explains our view that house prices will grow by an above-consensus 3.5% in Q4 2025 and 4.5% in Q4 2026."
Experts suggest that the slowdown in house price growth could be an early indicator of more stable conditions in 2025. With high mortgage rates and affordability constraints limiting buyer demand, price increases may continue to moderate over the coming months.
However, demand for housing remains strong, and supply constraints could keep prices from falling significantly. Analysts will be closely watching upcoming economic indicators and interest rate decisions to assess the trajectory of the housing market in the months ahead.
For now, the latest data suggests that while house prices continue to rise on an annual basis, the rapid growth of 2024 appears to be easing, providing a potential opening for prospective buyers who have been waiting for a more balanced market.