Cebr expects house prices to continue growing in 2025, supported by improved affordability and lower interest rates. Nevertheless, recent developments mean our outlook is not as rosy as previously.

The average price of a property in 2024 was £262,000, according to data released by HM Land Registry this week. Though this amounts to a record high, house price growth has been notably slower in recent years. The value of the average property increased by 1.3% in 2024, up from 2023’s 0.3%, but still well below the trend of 3.7% recorded between the financial crisis and the pandemic. Compared to the immediate post-pandemic values of 8.1% and 9.3% growth recorded in 2021 and 2022, respectively, the lower rates of house price growth in recent years are even more stark.

The dynamics for growth in 2025 and beyond are interesting. Notably, affordability is improving. House price growth in recent years has fallen below both the headline rate of inflation and the rate of income growth, meaning that the price-to-earnings ratio has improved for buyers. This trend is expected to continue in 2025, with earnings growth remaining historically elevated and, crucially, above the rate of inflation. The demand side of the market is set to benefit as a result.

Another important factor is monetary policy, for which our outlook has partially shifted recently. Though interest rates are still expected to trend downwards, slightly higher values are projected in the medium term. Amongst other factors, this has been driven by recent outturn data, such as January’s above-consensus CPI reading, and wider expectations of heightened inflationary pressure throughout 2025. Such higher rates will mean that the costs of servicing mortgage debt will likely be higher than they were otherwise expected to have been.

On the whole, we expect the demand-side factor of improved affordability to outweigh the constraint presented by monetary policy remaining tighter for longer. Consequently, we expect house price growth to be faster this year than last, with our current projection showing the average house price increasing by 2.8% on the year. Particularly strong growth is expected in the North East, North West, and Scotland, with rates in excess of 4.0%.

Nevertheless, our forecast is now weaker than it would have been in the absence of recent developments on inflation and their implications for monetary policy. For instance, our 2025 house price growth forecast from the middle of Q4 last year showed 4.2%.  

Our outlook also means that we expect mortgage holders to be servicing their debts at different rates this year. For those on standard variable rates, we expect a typical charge of 7.0%. For those taking on a two-year fix, we project a typical rate of 4.3%. Meanwhile, amongst five-year fixers, our expectation is a rate of 3.9%.

As the base rate eases into the late 2020s, servicing rates are set to follow. Nevertheless, they will remain firmly above those recorded prior to the recent hiking cycle and will represent a pinch point for households coming off long-term deals. Cebr expects the interest payment on the average property with a five-year fix and typical purchasing arrangements to amount to £668 per month this year, bringing total costs of £8,020.[1] That same product would have been available at a cost of just £254 per month, or £3,050 in total, half a decade ago.

Servicing costs have therefore more than doubled in the case of a five-year fix, with an annualised difference of around £5,000 in this representative example. In the cases of standard variable rates and two-year fixes, the annualised differences amount to £6,400 and £5,700, respectively. 

Relative to 2019, the final pre-pandemic year, the differences in costs amount to £5,100, £5,500, and £4,400 for standard variable rates, two-year fixes, and five-year fixes, respectively. This produces an average difference of £5,000, taking account of the distribution of mortgages across product types.

Though not discussed at length in this article, another factor likely to impact house price growth over our forecast horizon is policy. Of particular note is Labour’s previous commitment to building 1.5 million homes during the current parliament. Progress towards this is as yet unclear and some stakeholders have questioned whether it is achievable at all. Nevertheless, if this were to come to fruition, it would contribute to the Chancellor’s much discussed objective to boost growth and improve the supply-side of the market, potentially improving affordability, albeit with a lag. In the interim, house price dynamics are more likely to be affected by the interplay between monetary policy and improved conditions for consumers, culminating in a further year of improvement in 2025.

[1] Typical purchasing arrangements defined as 75% LTV over a 25-year term. Values subject to rounding.

Typical interest payments by region and product type

Note: Values based on Cebr forecast for average 2025 property price, with 75% LTV mortgage over 25-year term.

For more information contact:

Sam Miley, Managing Economist and Forecasting Lead – smiley@cebr.com – 020 7324 2874

Cebr is an independent London-based economic consultancy specialising in economic impact assessment, macroeconomic forecasting and thought leadership. For more information on this report, or if you are interested in commissioning research with Cebr, please contact us using our enquiries page.