If you’re thinking about buying, selling, or investing in property this year, you’re probably wondering what’s actually going to happen with house prices and mortgage rates. The good news is that 2025 is shaping up to be more predictable than recent years, though there are still some significant changes on the horizon.
After the volatility of 2022-2024, the property market seems to be finding its feet again. Here’s what the latest data and expert forecasts suggest you can expect from the year ahead.
House Prices: Modest Growth Expected
Most experts are predicting gentle house price growth in 2025, with forecasts ranging from 1% to 4% depending on who you ask and where you’re looking.
Rightmove now expects the average asking price for a home to rise by just 2% over the course of 2025, a significant downgrade from its 4% forecast at the start of the year. Savills agrees that growth has been lower than expected, now expecting average prices to rise by just 1% in 2025.
However, other forecasters are slightly more optimistic. Capital Economics forecasts a 3.5% increase in property values, while some Rightmove experts predict that average asking prices will increase by 4% by the end of next year.
The average UK house price currently sits at around £271,619, according to Nationwide, bringing prices still 2.1% higher than they were a year ago. This puts us in a relatively stable position compared to the dramatic swings we’ve seen in recent years.
What’s driving this modest growth? It’s mainly about supply and demand fundamentals rather than speculation or cheap money. For some time, the UK’s housing market has been driven by huge demand and limited supply, and that underlying imbalance hasn’t changed.
Mortgage Rates: Gradual Improvement Ahead
Mortgage rates are expected to come down gradually throughout 2025, though they’ll still be well above the ultra-low rates we got used to in the early 2020s.
The current UK Bank of England base rate is 4.25%, and the market is pricing in that the Bank of England will likely cut the base rate two more times in 2025. That means that by the start of 2026, the base rate is predicted to fall to around 3.75%.
For mortgage holders, this translates to some relief. Five-year and two-year fixed rates could drop to around 4.0% in 2025, down from the current 4.83% (5-year fixed) and 5.08% (2-year fixed) averages.
That said, around 1.6 million fixed-rate deals are due to come to an end in 2025, according to trade association UK Finance. Many of these homeowners will be moving from much lower rates secured during the pandemic to today’s higher rates, which will still represent a significant increase in monthly payments.
The Bank of England is being cautious about rate cuts because inflation is on a bumpy path, and we expect it to rise to 3.7% by September 2025. This is because of increases in global energy costs and some regulated prices, such as water bills.
Regional Variations: The North Leads the Way
One of the clearest trends for 2025 is the continued outperformance of northern regions compared to London and the South East.
Estate agent Knight Frank said it expects the strongest house price growth to be in the “more affordable markets in the North” in the coming years, with areas such as the North West, North East, Humber, Yorkshire and Scotland to see a forecast 5% increase in prices in 2025.
This represents a significant shift from historical patterns where London and the South East typically led price growth. Data released by Halifax showed that the ten areas with the biggest growth in 2024 were mostly towns with lower house prices, such as Stoke-on-Trent (17 per cent growth), Slough (15 per cent) and Oldham (15 per cent).
The Major Growth Hotspots
Several cities are standing out as particularly promising for 2025:
Manchester continues to be a standout performer. Manchester has already enjoyed a 33% increase in property prices in the past five years, according to Cityrise, against a national average of 15%. Average property prices in the city are £234,000. The city benefits from major regeneration projects and strong job growth in the tech sector.
Birmingham is seeing a significant transformation. Birmingham remains one of the best places to invest in UK property in 2025 due to the sheer amount of regeneration, demand and growth it is forecasting for the years ahead. Most promising is the Future City Plan, which is set to revolutionise the city.
Leeds maintains its position as a northern powerhouse. According to Savills, Leeds is already one of the fastest-growing cities for house prices in the region, regularly ranking in the top five UK cities for capital growth.
Liverpool offers compelling value. Zoopla notes that urban areas in particular in the North West have had the strongest house prices in recent years, led by Liverpool, Manchester and the surrounding areas.
Here’s how the major regions are expected to perform:
| Region | Expected 2025 Growth | Average Price | Key Drivers |
| North West | 4-5% | £185,000 | Manchester regeneration, Liverpool docks |
| Yorkshire | 3.8-4.5% | £195,000 | Leeds financial sector, Sheffield tech |
| West Midlands | 4-4.5% | £235,000 | Birmingham HS2, urban regeneration |
| Scotland | 3.5-4% | £185,000 | Edinburgh finance, Glasgow culture |
| London | 2-3% | £535,000 | Return to office, international buyers |
| South East | 2.5-3% | £415,000 | Commuter belt recovery |
What’s Driving Regional Growth
The shift towards northern cities isn’t just about affordability—though that’s certainly part of it. Several structural factors are supporting growth in these areas:
Infrastructure Investment: Major projects like HS2 are already impacting Birmingham property prices, even before completion. Similar transport improvements across northern cities are boosting connectivity and attractiveness.
Economic Development: Savills estimates that Leeds’ Gross Value Added (GVA) – a metric for measuring the contribution of a company or area to an economy – will increase by 16% over the next 10 years, higher than the expected national average.
Lifestyle Migration: The pandemic accelerated a trend of people moving away from expensive southern cities to more affordable northern locations with a better quality of life.
University Cities: Many northern growth hotspots are also major university cities, providing a steady pipeline of young professionals who often stay after graduation.
London’s Different Story
London is expected to have a more muted year, though there are signs of recovery. London price growth to be in line with, or maybe even marginally ahead of, national price rises in 2025.
Factors like the return of a five-day office-based working week for some companies, and renewed interest from international buyers, are expected to drive up demand in the capital.
However, London faces unique challenges. Those selling London and home counties properties in the £1.5 million to £2 million bracket may have more luck, however. Because of the shortage of quality family homes in affluent suburbs, agents say the right property of this type could sell swiftly.
The prime central London market faces particular headwinds, with a 5 per cent fall in prime central London, as richer buyers shun higher taxes expected.
The Rental Market Remains Robust
If you’re a landlord or thinking about buy-to-let investment, the rental market continues to show strength, though the pace of growth is expected to moderate.
According to Rightmove, tenant demand in 2024 was nearly double pre-pandemic levels, averaging 19 enquiries per rental property. Over the past five years, rents have risen by 40%.
For 2025, rental prices likely to see around 3% growth as the market becomes more balanced with improving supply.
The best rental yields are found outside London. Rental yields in Manchester averaged 6.5% in April 2024 and reached as high as 12% in high-performing areas, well above the 2024 national average of 5.37%.
Top Cities for Rental Returns:
- Manchester: 6.8% average yield
- Liverpool: 7.2% average yield
- Newcastle: 7.0% average yield
- Sheffield: 6.8% average yield
- Birmingham: Strong demand, competitive yields
First-Time Buyers Face Continued Challenges
The picture for first-time buyers remains tough, despite some improvements in mortgage availability.
We’ll continue to see support from BOMAD (the ‘Bank of Mum and Dad’) in the form of deposits for around 40% of first-time buyer purchases in 2025. The average gift being given by family members is c.£25,000.
The stark reality is that only a small minority (8%) of those aged 25-to-34 who are not homeowners have sufficient savings to afford a 10% deposit on the average first-time buyer home in their region; indeed, half (48%) of non-home owning young family units have less than £1,000 in the bank.
However, there are some positive developments. More lenders are offering high loan-to-value mortgages, and the government’s focus on increasing housing supply should help in the longer term.
Stamp Duty Changes Create Early Year Rush
One significant factor affecting the 2025 market is the end of the stamp duty break for first-time buyers on 31st March 2025.
Stamp duty charges rising from 1st April mean we are likely to see a particularly busy first three months of the year as first-time buyers, home-movers and investors all try to complete on planned purchases and avoid higher charges.
Just 8% of homes for sale in London were stamp duty-free for first-time buyers from April, while this figure will be 24% in the South East and 32% in the East of England, according to Rightmove.
This creates a natural rush in Q1 2025, followed by a potential slowdown in activity as buyers adjust to the higher costs.
Investment Opportunities and Risks
For property investors, 2025 presents a mixed picture of opportunities and challenges.
Opportunities:
- Northern cities offering strong yields and capital growth potential
- Continued rental demand exceeding supply in most areas
- More realistic pricing after recent market corrections
- Infrastructure investment is driving long-term value in specific areas
Challenges:
- Higher mortgage rates are increasing financing costs
- Regulatory pressures on landlords continue
- Economic uncertainty is affecting tenant demand
- Higher stamp duty on second homes from April
Property investment in 2025 offers selective opportunities with rental yields of 4-8% depending on location and property type. Northern regions provide superior yields with Manchester, Liverpool, and Leeds offering 6-8% returns combined with capital growth potential.
The broader economic context will significantly influence property market performance in 2025.
Key factors to watch include:
- Inflation trajectory: Currently above target and expected to remain elevated
- Employment levels: Remain relatively strong but could weaken
- Consumer confidence: Gradually improving but still fragile
- Global economic conditions: Trade tensions and geopolitical events could impact markets
The UK economy is stagnant, but the housing market could still have another positive year, largely because housing demand is driven by fundamental needs rather than just economic optimism.
What This Means for Different Groups
For Buyers:
- Be prepared for competition in popular northern cities
- Factor in higher mortgage rates when calculating affordability
- Consider timing purchases to avoid stamp duty increases
- Look beyond London for value and growth potential
For Sellers:
- Price realistically, especially in higher-value southern markets
- Expect longer sale times than in recent peak years
- Consider timing if affected by stamp duty changes
- Highlight energy efficiency and modern features
For Investors:
- Focus on areas with strong rental demand and infrastructure investment
- Factor in higher financing costs and regulatory compliance
- Consider professional property management for optimal returns
- Diversify geographically to spread risk
Looking Beyond 2025
While 2025 forecasts are becoming clearer, the medium-term outlook suggests continued evolution in the UK property market.
Savills expects 29% growth in house prices over the next five years in the North West, 28% in the North East, Yorkshire and the Humber, and 26% in the West Midlands.
This suggests the current regional rebalancing isn’t just a temporary trend but a fundamental shift in where value and opportunity exist in the UK property market.
The government’s commitment to building 1.5 million new homes by 2029 could also gradually improve affordability, though the impact will take time to materialise.
Navigate the 2025 Market with Expert Guidance
Understanding market trends is one thing, but successfully buying or selling property in today’s market requires local expertise and professional guidance. Whether you’re looking to take advantage of growth opportunities in emerging hotspots or need advice on timing your move around mortgage rate changes, having the right estate agent makes all the difference.
Paveys Estate Agents combines deep local market knowledge with a clear understanding of current trends and buyer behaviour. Our team can help you navigate the complexities of the 2025 market, from pricing strategies that reflect regional variations to timing purchases around stamp duty changes.
Whether you’re a first-time buyer exploring more affordable northern markets, an investor seeking high-yield opportunities, or a seller looking to maximise value in today’s conditions, we provide the insight and support you need to make informed decisions.
Ready to make your move in 2025? Contact Paveys Estate Agents today for expert advice tailored to your specific situation and local market conditions. With our knowledge of regional trends and current buyer sentiment, we’ll help you achieve your property goals in the year ahead.
