U.K. house prices experienced their first decline in nine months, marking a 0.2% drop from November to December. This decrease, the first since March, comes amid broader economic influences, including government policy changes and rising mortgage rates. Despite the monthly dip, house prices still showed a 3.3% increase compared to the previous year, although this annual growth was down from 4.7% in November.
The recent decline in house prices can be attributed to a combination of factors. The U.K. government's latest budget announcement, which ended a pandemic-era reduction in Stamp Duty Land Tax, has impacted the housing market dynamics. With this change effective from April 1, homebuyers will soon face higher transaction costs. Additionally, rising mortgage rates have further dampened homebuyer activity, affecting market momentum.
"The stamp duty changes are undoubtedly a key driver of demand at present, which is supporting property values." – Stephen Perkins, managing director at Yellow Brick Mortgages.
The average property value in the U.K. slightly decreased to £297,166 ($372,560) in December. Mortgage approvals also fell short of expectations in November, coming in below the figures recorded in October. These trends have affected major U.K. homebuilder companies such as Taylor Wimpey, Persimmon, Bellway, and Barratt Redrow, whose shares fell following the data release.
Knight Frank revised its property price growth forecasts in November, now predicting that average property prices will increase by 2.5% in 2025 and by 3% in 2026. The company anticipates that transactions will pick up in the initial months of this year due to changes in key homebuyer taxes. However, the outlook remains cautious as higher mortgage rates are likely to continue to weigh on the market through 2025.
"Mortgage affordability will remain a challenge for many, especially as the Bank Rate is likely to come down more slowly than previously predicted." – Amanda Bryden, head of mortgages at Halifax.
The U.K. housing market's recent fluctuations highlight the delicate balance between policy shifts and economic conditions that influence buyer behavior. As homebuyers navigate these changes, industry experts remain attentive to how future adjustments may impact affordability and demand.