Interest Rates

 

​The second cut to the UK Bank base rate (from 5% to 4.75%) in November was a welcome relief for the market and it was then held at that level (with 3 of the 9 MPC members voting for another 0.25% cut) in the latest meeting in December. 

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Market forecasts envisage two to three rate cuts by the MPC this year, with the first one possibly not coming before May.  

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The consensus is that the base rate will be around 3.75% by the end of 2025. 

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However, swap rates that directly influence fixed-rate mortgage pricing have not fallen in line with the BOE’s cuts to the base rate. This is mainly due to market uncertainties about future interest rates and potential inflation – especially after the recent Autumn Budget. 

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The continuing underlying volatility and uncertainty in swap rates means lenders face a challenging balancing act: they want to offer competitive fixed rates to attract borrowers, but they also want to avoid getting caught in a situation where they become too attractive compared to peers and are overwhelmed with new applications. There are still countless examples of fixed rates being pulled by lenders at extremely short notice, which means that borrowers and Brokers need to be more agile as fixed rates may change overnight. 

 

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Residential Property

 

2024 proved to be a year of two halves in the UK housing market. Static market conditions caused by a combination of higher mortgage rates, stamp duty rises, changes to the non-dom regime and a looming General Election persisted from 2023 into the first half of the year.  

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This was followed by a significant uplift in activity following the July General Election result - the housing market thrives on clarity, and the long-awaited cut to the base rate in August.  

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Overall, Halifax and Nationwide’s UK House Price Indexes show annual growth of 3.3% to 4.7% respectively for 2024. 

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However, these mask significant regional differences. Land Registry data shows that the highest house price growth across the North of England and Scotland and the greatest price falls in London (specifically Kensington and Chelsea). For context, Savills reports that Prime Central London prices fell by 1.9% during 2024. 

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However, the Central London market is still an attractive proposition for US, Asian and Middle Eastern buyers, with Mayfair and Chelsea the most sought-after areas, and there appears to be an increasing proportion of cash purchases. Interestingly, several agents have been reporting a growing trend of younger international buyers which, in turn, has been driving demand for turn-key homes, newly built lateral apartments, and fully refurbished houses. 

 

Upcoming changes to Stamp Duty Land Tax (SDLT) are expected to generate significant activity in the UK housing market as prospective buyers look to bring forward their purchases in order to avoid higher taxes, particularly first-time buyers. 

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​Several agents are already reporting very healthy figures going into 2025. Foxtons’ boss Guy Gittins revealed the agency’s sales pipeline is running at its highest level since the EU Referendum back in 2016. 

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Predicting the property market has always been challenging, but it has become particularly difficult in the current climate. Savills has a relatively optimistic outlook for UK property prices, and is expecting a 4% growth overall in 2025, with London at a slower 3% increase. 

 

For comparison, Knight Frank predicts an increase of 2% for London in 2025, which lags significantly behind their predictions for the majority of other European cities, with the UK capital now sitting at the bottom of their table of ten key cities and resorts. Interestingly, Stockholm is their pick for the fastest growth this year. 

The supply of rental homes will likely remain tight this year. The additional Stamp Duty on second homes, as well as higher mortgage costs compared with a few years ago, will impact the number of new landlords entering the market. 

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Proposed legislation is also set to deter some landlords. The Renters' Rights Bill, which could come into force this spring, is expected to have far-reaching implications for the sector. Increased protection for tenants and requirements to upgrade the Energy Performance Certificate (EPC) by 2030 means the choice to stick or twist is one all landlords (especially those with older properties) will soon face.  

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High demand and low supply have been the major influence behind the significant rental growth seen over the past few years. According to new numbers from Rightmove, letting agents are still receiving nearly twice as many enquiries from would-be tenants per available property as in pre-pandemic 2019. There are, however, signs that tenants are now hitting an affordability ‘ceiling’ and would not be able to meet any further significant rent rises. Most projections indicate that the current rate of rental growth will subside in 2025 – especially in London.  

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​Outlook

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Although it’s harder than ever to predict what 2025 will look like, there are some factors that should positively shape the landscape of the market, particularly in terms of mortgage interest rates and continuing consumer confidence. 

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​Seeking professional advice is crucial, especially in the current market. Whether you're contemplating a new real estate purchase or reviewing your current property arrangements, expert guidance can help you navigate complexities and make well-informed decisions. 

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Our team is here to assist you with personalised advice and strategies that suit your specific needs and goals. We can help you assess market trends, understand legal implications, evaluate investment potential, and explore available financing options. If you'd like to discuss any aspect of your property journey, please don't hesitate to reach out—we'd be delighted to help!