Housing Market: 2025 Outlook
Richard Howes
19 December 2024For November 2024, compared to November 2023:
- Purchase mortgage searches were up 10.39%
- Remortgage searches were down 14.05%
- BTL purchase mortgage searches were up 0.04%
- BTL remortgage searches were down 0.01%
- Residential purchase mortgage searches were up 12.36%
- Residential remortgage searches were down 18.42%
- Searches by First Time Buyers were up 0.45%
“Cost of buying average home in England now unaffordable, warns ONS.
Only richest 10% can afford to buy as figures show average household needs 8.6 times disposable income to meet asking price”.
“Average UK house price hits record £300,000 as demand remains undented”
“UK house prices rise at fastest rate in nearly two years. Nationwide reports surprise growth despite near-record prices straining affordability”
“Average asking price for UK home drops by £5,000 in November”
“Leading UK estate agent cuts its longer-term house price growth forecast. Hamptons says ‘modest’ rises can be expected amid ‘dampening effect’ of higher interest rates overall”
It would appear that 2024 will end with a market size of c.£235bn. UK Finance - along with many commentators and Lenders - are thinking 2025 will be in the region of £260bn, an 11% rise, with a record Product Transfer (PT) market in the region of £380bn in addition to the £260bn. UK Finance’s Head of Analytics said;
“The mortgage market showed greater than previously expected resilience in 2024 as cost and rate pressures began to recede. Affordability constraints did impact external remortgage activity, but strong competition to retain customers meant those coming off fixed rates could find a new internal product transfer deal without needing a new affordability test.
In 2025 we are forecasting continued steady growth in both house purchase and remortgage lending as affordability improves further. We are however forecasting a slight fall in buy-to-let lending in 2025. The prudent underwriting standards in place for the past decade have helped most customers who might have fallen into difficultly. Arrears look to have peaked early in 2024 before falling back, and we expect them to fall again in 2025”.
Lenders have been building their pipelines this quarter, and thus 2025 is likely to start in a more considered fashion, as opposed to this years ‘boom’ where Lenders had no pipeline and came into 2024 prepared to give away margin to drive volume - but that’s not to say there will not be opportunities or business won’t be written. The PT market is the biggest it’s ever been, with a myriad of opportunities for advisers, Lenders and customers. The Bank of England recently published their latest Financial Stability Report on UK Household Debt & Vulnerabilities, which plays into this area. It found there are c8.8m mortgages in the UK, and of those 37% who have a fixed rate mortgage have yet to refinance since rates began rising in late 2021, meaning the full impact of higher rates has not yet been felt.
However, between December 2024 and Q4 2027, 50% of mortgage accounts (4.4m) are expected to refinance onto higher rates, 31% of all mortgages (2.7m) will refinance above the 3% level for the first time. 5% of mortgages ( at 500k+) will experience monthly payment increases exceeding £500, and 27% of mortgages (2.4m) will see monthly payments decrease due to falling bank rate.
An unintended consequence of the PT market is the ‘strangling’ of the remortgage with an aggressive position from many on their PT pricing ‘forcing’ borrowers to do the ‘3 click dance’ and remain where they are - especially if there is no extra borrowing required. It will be interesting to see if many Lenders pursue this as the remortgage market has traditionally kept the whole merry-go-round going.
The market seems to have accepted we could be in a declining rate environment in 2025, being led by the Base rate where recent comments from the Governor of the BoE saw him talking about 4 rate cuts in 2025. Interestingly, HSBC are predicting 6 cuts and Capitol Economics 5 cuts. Lenders are responding, as SWAPs are falling and even in December Lenders were regularly cutting rates below the ‘magical’ 4% barrier, presumably trying to pick up business which is available due to the Stamp Duty timeline. Although the noise around the economy does give one a thought there may be trouble ahead…
One of the areas that has dominated the market in recent weeks is the Government’s policy on housing, and as a result on the planning side too. There is enormous scepticism from advisers, Lenders, commentators (and maybe even the Government!), that the goal of 1.5 million homes being built will be achieved. The housing supply target has not been met in recent years and the closest the country came to meeting this target was in the late 1970s. An additional area to planning that may act as a blocker to this is the UK does not have enough construction workers to build the houses, according to the construction industry. The Home Builders Federation (HBF) and Barratts advised the target means building an average of 300,000 new homes a year - in recent years the number has been about 220,000. The current workforce is estimated to be 2.67 million, according to the Construction Industry Training Board (CITB). But for every 10,000 new homes to be built, the sector needs about 30,000 new recruits across 12 trades, according to the HBF, the trade body for the house building industry in England and Wales.
According to BBC News, the estimated number of new workers required for some common trades, for example, would be:
- 20,000 bricklayers
- 2,400 plumbers
- 8,000 carpenters
- 3,200 plasterers
- 20,000 groundworkers
- 1,200 tilers
- 2,400 electricians
- 2,400 roofers
