Despite facing economic hurdles, the UK property market is showing resilience, with annual house price growth reaching its highest point since November 2022. This stands in sharp contrast to the broader economic landscape, which has been marred by declining manufacturing output and wavering consumer confidence.
According to Knight Frank’s Head of UK Residential Research, Tom Bill, the market’s stability amidst such challenges reflects the complex dynamics shaping the current UK economy.
Recent manufacturing data revealed the sharpest decline in output in 11 months, coinciding with a notable fall in the value of the pound. Businesses are increasingly burdened by rising costs, including higher employer National Insurance contributions, while disappointing Christmas retail figures have further dampened consumer sentiment.
According to Tom Bill, the UK property market remains buoyant, for two reasons:
One key factor is the availability of sub-4% mortgage offers secured before the Chancellor’s economic plans were announced on 30 October. These offers, often valid for up to six months, provide a buffer against the higher borrowing costs introduced in the Budget.
Additionally, the financial markets have adjusted to the government’s borrowing and spending plans, leading to a rise in bond yields and pushing the five-year interest rate swap (used to price fixed-rate mortgages) to 4.3% from 3.8% in early October.
Another factor influencing buyer behaviour is the upcoming change to stamp duty rates. From April 2025, the nil-rate band for stamp duty will revert from £250,000 to £125,000, potentially increasing bills by up to £2,500 for some buyers. First-time buyers could face even higher increases of up to £6,250.
Tom Bill notes that even the prospect of a modest saving can drive a temporary surge in activity, as witnessed during the stamp duty holiday of the pandemic. While April 2025 may not be the harshest month for the housing market, a slowdown could follow this period of heightened activity.
Higher borrowing costs and slower economic growth have prompted Knight Frank to revise its 2025 house price forecasts downward. Concerns about wage inflation and the risk of ‘stagflation’—characterised by slow growth, rising prices, and increasing unemployment—are also adding pressure.
Political developments, such as the possibility of further tax rises and scrutiny over government spending plans, are likely to play a pivotal role in shaping the housing market in the coming months.
For investors and buyers, the current market presents opportunities amid the uncertainty. Those who act now could benefit from favourable mortgage rates and potential savings before April’s stamp duty changes come into effect.
At Value Invest, we specialise in helping buyers and investors navigate the complexities of the real estate market. Whether you’re looking to buy, sell, or invest, our expert team can provide you with the guidance you need to make informed decisions. Get in touch with us today to explore the latest opportunities and stay ahead of the curve in this dynamic market.
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