2025 predictions for mortgages and house prices

In 2025, the UK mortgage and housing market is set for a period of notable shifts, due to the ever-changing economic conditions and policy changes. From anticipated interest rate reductions and increased lending activity to adjustments in the buy-to-let sector and the conclusion of the stamp duty holiday, several key factors are likely to shape the landscape. In this article, we explore the top predictions and anticipated changes for 2025, examining their potential impact on borrowers, lenders and the housing market as a whole.

Interest rates expected to decrease

One of the most significant changes anticipated in 2025 is a reduction in the Bank of England’s base rate, which is expected to decrease to around 3.7% by the end of the year. The base rate influences the level of all other interest rates, including mortgages. Therefore, this forecast cut will likely ease borrowing costs, making mortgages more affordable for many borrowers. 

In fact, major lenders have already begun to adjust their rates in anticipation of this change. For instance, Halifax has reduced rates for remortgages by up to 0.35% and for new borrowers by up to 0.15%. Similarly, Leeds Building Society has introduced competitive five-year fixed deals starting at 4.25%, reflecting the broader trend of decreasing rates.

Gross lending to increase by 11%

The overall mortgage lending market is set to grow, with UK Finance forecasting an 11% increase in gross mortgage lending for 2025 which would increase the total lending to approximately £260 billion. This is most likely due to the improvement in affordability restoring buyer confidence. 

Lending for house purchases is predicted to rise by 10%, reaching £148 billion, while external remortgaging is expected to surge by 30% to £76 billion, according to UK Finance. This spike in remortgaging activity is most likely due to borrowers seeking to benefit from lower interest rates as their current fixed-rate deals conclude. Additionally, internal product transfers are projected to increase by 13%, as existing homeowners look for better deals within their current lenders.

Slight decline in buy-to-let lending

The buy-to-let (BTL) sector, however, is forecasted to experience a slight decline. UK Finance anticipates a 7% drop in new BTL purchase lending, bringing the total down to £9 billion in 2025. This is influenced by heightened stamp duty for additional properties and ongoing regulatory pressures, prompting some landlords to reevaluate their investments. According to the National Residential Landlords Association (NRLA), 31% of landlords are planning to sell properties they rent out in the next two years due to these increased cost pressures.

Decrease in arrears

On a positive note, mortgage arrears are expected to decrease in 2025. The number of customers falling behind on their mortgage payments peaked in early 2024 before decreasing and is projected to decline further in 2025. UK Finance predicts a 5% reduction in arrears, suggesting improved financial health among homeowners as a result of declining interest rates and prudent underwriting standards.

End of stamp duty holiday

The stamp duty holiday, which provided temporary relief for homebuyers, is set to end in April 2025. The thresholds are set to change to: 

• 0% on the portion of the property up to £125,000 (currently £250,000)
• 2% on the portion of the property up to £250,000
• 0% on the portion of the property up to £300,000 (currently £425,000) for first-time buyers
• 5% on the portion of the property between £300,001 and £500,000 (currently £425,001 to £625,000) for first-time buyers. 

This change is expected to impact market dynamics, potentially causing a slight increase in transactions just before the holiday concludes. However, the overall effect may be limited, as the savings for most buyers are relatively modest. Additionally, the introduction of a 2% stamp duty surcharge for second-home buyers could deter some investors, potentially cooling specific segments of the market.

Modest growth in house prices

House prices are projected to experience modest growth in 2025, with Nationwide Building Society forecasting an increase of 2% to 4%, while Halifax anticipates growth between 0% and 3%. Several factors contribute to this growth, including lower interest rates, rising real wages and ongoing demand for housing. 

However, regional disparities are expected. According to the real estate firm Savills, Scotland and northern England will see the fastest increase in mainstream house prices, at approximately 5%. The South West and East of England, on the other hand, are expected to rise by just 2.5%. London and the South East are both expected to grow by around 3% and the West Midlands by around 4.5%. 

Rise in green mortgages

With increasing emphasis on sustainability as we push towards becoming Net Zero by 2050, green mortgages are expected to gain more traction in 2025. These mortgages offer favorable terms for newbuild properties that meet specific energy efficiency standards or for homeowners making eco-friendly upgrades. 

Mortgage lenders have already started to introduce more green mortgage products, incentivising energy-efficient homes with lower interest rates or cashback offers. For example, Natwest offers benefits such as cashback and better mortgage rates on homes with an EPC rating of A or B. Nationwide provides cashback for those purchasing homes with high EPC ratings and interest-free borrowing options for energy-efficient home improvements.

The role of mortgage advisers

Due to the evolving market conditions, the role of mortgage advisers will likely become increasingly crucial in 2025. Borrowers will rely heavily on professional guidance to navigate the complexities of the mortgage landscape and make informed decisions. This presents a significant opportunity for aspiring mortgage advisers to enter the field and make a meaningful impact.

Simply Academy offers comprehensive courses designed to equip individuals with the knowledge and skills necessary to succeed in this dynamic industry. Courses such as the Certificate in Mortgage Advice and Practice (CeMAP) and Certificate in Regulated Equity Release (CeRER) provide in-depth training and qualifications essential for a career in mortgage advising.