What can we expect from the housing market in 2025?

"Deposit raising and affordability remains difficult, to the point that we could probably call it the collapse of youth home ownership."

2024 was a year of change around the world. A new government came into power in the UK, while numerous international elections and conflicts caused geopolitical uncertainty. We’re entering this new year against a very different political and economic landscape. But what do these changes mean for the property market in 2025, and how will they impact housing supply, affordability, and mortgage rates this year? 

What's the economic backdrop to the housing market? 

The rise in inflation and interest rates which led to the cost-of-living crisis in 2023 are still having repercussions. While inflation has slowed, prices haven’t fallen. House prices, interest rates and mortgage rates have fluctuated, and many potential buyers, especially younger buyers, are finding it increasingly difficult to access the market. However, inflation also means that wages have grown, which means most people are still able to meet the increased cost of mortgages. 

The domestic outlook for the UK economy remains relatively benign. Even though economic growth has recently been slow, and its absence is a challenge, unemployment remains low by historic standards and inflation has fallen back towards the Bank of England’s target. The rate is likely to remain a little above 2% over the course of 2025, but this slowing in the pace of inflation has been sufficient to allow the Bank of England to begin to reduce the Base Rate from its peak.  

External geopolitical risks continue to be a factor, not least around the shape of economic policies adopted by the US and the responses by the UK, EU and China. Even in the absence of major surprises, global financial markets have recently looked ahead to likely shape of future US economic policy and have accordingly repriced US borrowing costs, with knock-on effects for borrowing costs in the UK. 

Why is it so hard for first time buyers right now? 

Though unemployment remains relatively low, house prices have continued to outstrip real wage growth since the financial crisis in 2008. As a result, deposit raising and affordability continue to be significant barriers for younger people wanting to get onto the property ladder.  

The chances of a young single person being a homeowner today is lower than for couples (11% compared with 52%), and these relative odds have grown over time. In 1989, young couples were around three times as likely to be homeowners than singles; this increased to almost five times by 2019, as dual earner couples have become the norm. 

Back in 2000 the average UK property price was £80,000, with an average deposit of £8,000. Now the average house price has risen to £290,000 and with an average deposit of £53,000. Whilst average UK salaries have increased from £20,000 in 2000 to £35,000 today, this has not been enough to keep pace with increases to housing costs.  

When adjusted for inflation, the purchasing power of today’s buyers is not what it once was, with monthly mortgage payments on home buying purchases at the highest share of income for 15 years. 67% of 25-34-year-olds who cannot buy a home today cite the cost of a deposit as a barrier, while 41% report they are unable to service a mortgage. 

All this means that not only are houses more expensive, but it’s also taking longer for young people to be able to save up for a first deposit. Rising rents and living costs also impact how much income would-be first time buyers can put towards a deposit. 

One of the main causes of all this, though, is the lack of available homes for young adults - and this includes those who are renting. Really, there’s nothing that suggests the market is going to get easier for this demographic in 2025. 

How can we help younger adults to get onto the property market? 

The first thing that needs to be done to help get more young adults onto the property market is to address the UK’s housing shortage. And though the proposed reforms to the planning system will be helpful to support new housing delivery, it will take time for the effects of that to come through.  

In addition, we need to address the pressing issue of the lack of skilled workers who can deliver the homes that we desperately need.  

However, even as they face into these challenges, there are options available such as our First Time Buyer Boost and Lend a Hand schemes. We’re also working to deliver increased education and guidance through our customer channels.

We recognise there are always things we can do to further support First Time Buyers understand the home buying process, as well as things to think about when preparing to buy their first home. We’re also a supporter of Shared Ownership as a route to getting onto the property ladder. Our efforts continue to focus on innovating in this space to offer additional help to these customers.    

Buy to let in 2025 

The buy-to-let market looks subdued by historical standards, especially compared to the boom of the early 2000s, but it’s in a similar shape and size to how it was looking in 2024. Today, with changes in taxation and additional regulatory scrutiny still to come, the landscape for landlords has become more complex. While the market still sees value in buy-to-let, we’re seeing some investors, particularly smaller landlords, stepping back, which has consequences for rental supply and affordability for renters.  

As growth in this sector has begun to slow, it's likely rents will continue to increase in local markets where positive earnings expectations create affordability headroom. And if landlords do their research into these pockets of the private rental sector, they can continue to make good investments and benefit from upbeat Housing Price Index expectations.   

Looking to Scotland where there has already been significant reform to the Private Rented Sector. We’ve seen 6% fewer landlords yet a 3% growth in the number of rental properties since March 2020. This points to a consolidation of landlords' portfolios and gives reassurance that landlords continue to want to invest to meet demand.

As proposed reforms become finalised for England, landlords will be looking to understand what it means for them, which is where lenders, and property and mortgage professionals have the opportunity to step in and provide support and education to ensure a thriving private rental sector that works for everyone. 

Will housing get more sustainable in 2025? 

New build homes tend to be more sustainable, with average EPC ratings of A or B. They’re much better insulated than older homes, and cheaper to run. And that will only get better as the Future Homes Standard - new regulations which are set to increase the building performance of new homes in the UK - is implemented from this year onwards. 

We’re seeing limited appetite for retrofitting of existing homes, but there is an encouraging take up of solar panels, especially with those customers installing EV charging points. We know that EVs are often the gateway to customers thinking about the sustainability of their homes, and so in 2025 we need to make sure we’re having these joined-up conversations with customers.

Will the housing market crash in 2025? 

With all the unknowns and volatility across the market, there are large online search volumes around what will happen in the housing market this year. Right now, there’s nothing that would suggest there’s going to be a housing crash in 2025, but it is dependent on the UK economy.

That being said, those geopolitical risks are still present. And so, while we can be optimistic that the housing market will remain stable in 2025, we still need to keep a close watch on how international changes can impact us in the UK.