Mortgage affordability could prove a headwind to market housing growth in 2025, says Halifax, as its latest housing data reveals that house prices fell in December.
UK house price growth slowed by 0.2% last month, following five months of consecutive increases, according to data published by Halifax.
Overall, house prices rose 3.3% over the year to an average price of £297,166, down from an annual rate of 4.7% in November.
The housing market was broadly steady at the start of 2024, with house price growth gathering momentum in the latter half of the year, driven by falling mortgage rates and income growth. Impending changes to Stamp Duty thresholds have also motivated first-time buyers to get on the housing ladder, leading demand for mortgages to hit its highest level in over two years.
Amanda Bryden, head of mortgages at Halifax, said: “In many areas across the country, house prices were also buoyed by demand outstripping supply, possibly further amplified by homeowners holding off putting their property on the market, perhaps in anticipation of mortgage rates reducing further.”
However, Halifax warned that mortgage affordability will remain a challenge for many over the coming 12 months, especially as interest rates are likely to come down more slowly than previously predicted.
Karen Noye, mortgage expert at Quilter, said the housing market has battled high borrowing costs and affordability pressures for a long while now, yet demand “seems to have been sustained and the market may even now be adjusting to the ‘new normal’ of higher but more stable interest rates.”
But despite its resilience, Noye said the housing market will not be without its “fair share of challenges” in 2025.
“The changes to stamp duty, which are due to come into effect in April, could weigh heavily. For first time buyers, the impact will be keenly felt. Not only will the stamp duty threshold decrease but the maximum purchase price first time buyers’ relief can be claimed on will fall to £500,000 from the current level of £625,000. This will no doubt make taking the first step onto the property ladder even more challenging, particularly for those living in areas of the country with higher average house prices,” said Noye.
“First time buyers are a critical element of the housing market but piling on additional affordability pressures at a time when purchasing a first home is already extremely difficult means we could see a reduction in such purchases. This would not only be disappointing news for those who had hoped to take that first step, but it would also likely ripple across the market and we could see a ‘gluing up’ effect if chains stall and transactions slow as a result,” she added.
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