Our 2025 property market predictions…

 

Following on from the Autumn budget last October and seeing last years predictions play out over the course of 2024 we are giving you our bold predictions for the property market in 2025! These predictions are based on our own views and purely our opinion. Just like with any prediction, only time will tell, but our predictions below are more conservation to some we have seen from other people in the industry but these are ours. 

 

Our overall belief is that we will see a large increase in 1st time buyers entering the market but a drop off in people investing in property via buy to let, and here’s why… 

 

Since the Autumn budget stamp duty has increased from 2 – 5% for additional properties which will hit investors hard when buying a property by increasing their upfront costs. On a £100,000 property this is an increase of £2,000 in stamp duty that an investor will need to pay upfront, which can be difficult especially when you are already factoring in a 25% deposit, solicitors fees and potential refurbishment costs. We see this becoming quite a deterrent for those 1st time landlords or those looking to begin in property investing as a large cost to stomach. But this will also bring about opportunity for the ‘professional landlord’ or seasoned investor to pick up a property deal that a new investor would potentially overlook and those thinking outside the box. 

 

The increase in capital gains tax for additional properties up to 18% for basic rate taxpayers and 24% for higher rate will probably force some property investors to hold on to their properties that they would have one thought of selling to avoid a larger tax bill. At the time of writing the capital gains threshold is £6,500per individual per year. Any increase in capital gain on a buy to let property would be taxed at the above rates on anything over that £6,500 threshold. This we feel will force investors, typically the older investor who has held the property for many years and seen a good amount of capital appreciation and most likely to have bought a property in their personal name before the tax changes of 2018 to hold onto their properties until a better time to sell comes along. We think investors will hold on to their properties until tax implications change and wait for a more cost-effective window to offload their properties. 

 

We think 2025 will bring about plenty of buying potential for first time buyers and home movers with the average wage increasing by 6.7% over the course of 2024. Inflation remaining stable at 2.5% for the year and we have had another year of the Lifetime ISA being in place which has allowed 1st time buyers another year of saving and earning a further 25% bonus (Up to £1,000 this year) towards their deposit. 

The increase in wages and the curb on rising inflation will provide buyers with more money in their pocket (albeit a small amount) that they can save towards the deposit on their first home. If they have been saving this into a lifetime ISA this is more money that will benefit from the 25% government bonus which will further supercharge their savings. Coming through the end of the cost-of-living crisis potential buyers now have more money readily available to spend on a larger purchase such as a house. Having more surplus money each month will also allow buyers to spend more on a mortgage or stretch themselves to a larger purchase, one that may have felt out of reach when interest rates were higher in previous years or money was tighter. 

 

When you factor in the biggest and most promising prediction of 2025, that the Bank of England base rate will drop to 3.75% by Christmas 2025… makes this upcoming year a promising year for personal purchases. The base rate currently sits at 4.75%, with a further 2 cuts expected, one in Quarter 1 and further cuts in Quarter 2 & 3. We expect each cut to be between 0.25 – 0.5% at a time as the Bank of England aim to lower the base rate to the long-term average of 4%. 

 

With interest rates stabilising after Liz Truss shock budget in 2022 and the economy almost collapsing overnight which sent interest rates sky rocketing, the base rate has steadily been falling year on year which gives buyers confidence that the volatile times in the market are a thing of the past. This should bring out the buyers that have been sat on the fence waiting for better times to buy a property. 

 

With more buyers who will take advantage of better interest rates and more surplus income each month entering the market, demand will increase within the market which will drive up property prices. We expect property prices to continue to rise at a rate of 3-4% in 2025. Many lenders and economics predict that the number of transactions in 2025 will increase from 1.05m in 2024 to 1.2m+.