Housing sales end year on a high but fears about mortgage rates linger

The London housing market has ended 2024 on a high, although buyers remain price-sensitive and concerned about the cost of mortgages.

Over 280,000 homes worth £104bn are in the sales pipeline for 2025 – the highest number in four years, according to Zoopla.

In another good sign, house prices returned to growth – up 1.9 per cent from a year ago – after struggling for most of the year.

Zoopla forecasts house price growth of 2.5 per cent in 2025 and 1.15m transactions, up from 1.1m in 2024.

The big change this year has been the Bank of England’s decision to cut the base interest rate twice – it now stands at 4.75 per cent, down from 5.25 per cent.

The knock-on reduction in interest rates has made homes more affordable and boosted demand. But some analysts think the budget may have changed that.

Budget makes buyers think twice

Buyers are becoming more cautious about the price they pay for homes as mortgage rates start to lift and households consider the impact of the Budget on the outlook for the economy and jobs. 

Growth has stagnated in the latter half of the year and businesses have made some stark warnings on the way the Government’s tax rises will affect their plans for hiring and investment.

“More sales have supported a return to house price growth across the country but home buyers have become more price-sensitive in recent weeks as mortgage rates drift higher,” Richard Donnell, executive director at Zoopla, said.

“Affordability constraints will keep the pace of house price growth in check over 2025, but there will be enough price inflation to support five per cent more home moves,” Donnell added.

North-South divide to remain

Since 2010, house prices in the south of the country have risen much faster than those in the north.

In London, the average house price has gone up by 83 per cent. In northern England and the Midlands prices have risen by 41 per cent and 66 per cent, respectively.

The difference is even sharper when you look at England compared to the other countries in the UK: prices in Scotland have gone up just 30 per cent, while those in Ireland have risen 19 per cent.

Analysts therefore expect prices to rise faster in the north than the south, supported by rising salaries across the country.