As the New Year approaches, we take a moment to reflect on the mortgage and housing market over the past year and consider what changes may lie ahead in 2025.

The mortgage market has shown remarkable resilience throughout 2024. Falling inflation and mortgage rates, combined with rising real wages, have helped ease affordability constraints that weighed heavily on the market in 2023. This positive trajectory was further bolstered by two reductions in the Bank of England base rate in August and November, bringing it down from its most recent peak of 5.25% to the current level of 4.75%.

Over the past year, average mortgage rates for 2- and 5-year residential fixed rates fell by 0.38% and 0.22%, respectively, according to Rightmove. However, recent fluctuations in rates have surfaced, potentially driven by inflationary concerns stemming from the Autumn Budget and the aftermath of the US election. As lenders set their 2025 targets, we may see aggressive rate pricing emerge in January as they compete for early market share.

Market outlook for 2025

UK Finance have laid out their forecasts for the year ahead. Affordability is expected to continue improving, with purchase lending forecasted to grow by 10%, reaching £148 billion. Total mortgage market activity is projected to rise, with gross lending forecasted to hit £260 billion—a year-on-year increase of 11%.

Refinancing is also set to grow significantly in 2025 as many fixed-rate deals come to an end. Remortgaging activity is expected to increase by 30% to £76 billion, while product transfers (PT) are forecasted to grow by 13% to £254 billion.

Trends to watch in 2025

Here are some trends we anticipate for the New Year:

A surge in demand from first-time buyers

Early in the year, we expect to see a surge in demand from first-time buyers, many of whom may be relying on the bank of mum and dad to support their first purchase. The upcoming Stamp Duty changes that come into play from March 31st 2025 are the driving force behind this anticipated urgency, although meeting the deadline may prove challenging. For those aiming to complete before this date, securing a skilled solicitor may be crucial as January progresses.

Some buyers are already considering the potential impact of the higher stamp duty costs. This could affect their willingness to make offers on property or be used to negotiate lower asking prices if they fail to meet the deadline.

We expect all lenders, particularly building societies, to aim to help more first-time buyers get on the property ladder. This area has seen significant innovation in recent years, and we hope this continues.

Buy-to-let (BTL) activity to show modest growth

The buy-to-let market faced another blow this year with the introduction of an additional two per cent Stamp Duty surcharge announced in the Autumn Budget. Alongside enhanced regulatory and taxation challenges, UK Finance expects BTL purchase activity to contract by seven per cent to £9 billion in 2025.

We anticipate there will be more high-street lenders who enter the limited company BLT market in 2025, attempting to make this space more accessible and attracting more landlords with around 1-10 properties.

Variable and tracker rates

Potential shifts in the base rate next year could drive a resurgence in popularity for tracker mortgages next year. This follows a year where fixed-rate mortgages were preferred due to lower future-dated pricing.

In such unpredictable markets, fixed rates will continue to have their place, offering borrowers stability and peace of mind against possible rate fluctuations during the mortgage process. As most mortgage offers are valid for six months, borrowers could benefit by locking in the current rate and protect against potential future increases, while still having the flexibility to reassess if rates drop closer to their completion date.

Green Initiatives

Sustainability and green schemes will likely remain a key focus in 2025 as we push towards Net Zero. Many lenders are still navigating how best to encourage environmentally friendly practices, but this area has strong potential for growth in the coming years.

Recently, we have seen some lenders introduce new innovations to support green such as incorporating a property’s Energy Performance Certificate (EPC) rating into its affordability calculations.

In summary

2024 has been a year of recovery and adaptation for the mortgage market. External factors—from economic developments to political promises—have shaped its path, and 2025 will likely bring its own set of surprises.

While the market traditionally slows in the lead-up to Christmas, activity remains stronger than last year – sales agreed are up 22% and new buyer demand is up 13% – laying the foundations for a potentially busy Boxing Day bounce, according to Rightmove. Their data shows clear signs that buyers who are likely to face higher stamp duty charges are racing against the clock to complete their purchases.

Challenges remain for 2025, particularly with the looming stamp duty deadline on March 31st and the full impact of the Budget coming into force. While there was no change to the base rate this December, the Bank of England is expected to make cuts next year, although these may occur more slowly due to higher inflation forecasts following the Autumn Budget. Nonetheless, anticipated reductions in average mortgage rates should support affordability and stimulate market activity.

Organising your finances is a vital part of owning a property and you’ll want to ensure that you are on the best deal for your circumstances. Our dedicated mortgage consultants strive to stay at the forefront of the latest industry changes, ensuring you receive the most informed and tailored advice.

For personalised mortgage advice, please contact our team on 0800 980 8777 or email info@privatefinance.co.uk. You can also book an appointment at a time that is convenient for you here.

Your home may be repossessed if you do not keep up repayments on your mortgage. Private Finance is not a tax advisor, and this article does not constitute tax advice.

Share this article: