Insights from 2024, Predictions for Mortgages in 2025

A new year is upon us, and with it comes the opportunity to look back on 2024 and consider what lies ahead for the mortgage market. We caught up with Keith Church, the Head of Economic Modelling at 4most analytics consulting, to revisit his predictions for 2024. Back then, he had a lot to say about the economic landscape, the cooling of UK house prices, and the affordability barriers facing first-time buyers. As we head into 2025, many of these themes remain, Keith shares his latest observations on how the year’s developments and Budget announcements are shaping the year ahead.

Modest growth in 2024 as the economy balances challenges

Despite stronger-than-expected growth in early 2024, Keith notes that the economy’s performance has been uneven.

"Consumers have been reluctant to make big-ticket purchases, and confidence went into reverse in the run up to the Budget. With the government’s spending commitments front-loaded, GDP growth of 1.6% is expected in 2025. That is lower than the OBR forecast, it feels likely that firms will look to cut costs after the rise in NICs," he explains.

While the forecast for 2025 is optimistic, growth remains cautious due to potential cost-saving measures from businesses as they adapt to the new economic landscape.

House prices: holding steady but unlikely to surge

UK house prices began to rise slightly in 2024, with demand recovering after the lows of late 2023, driven by decreasing interest rates. However, the Budget has led to a recalibration of inflation and interest rate expectations, which brings affordability back to the forefront.

Keith says, “our view is that prices are still overvalued at current mortgage rates. While we do not expect a fall, large rises in prices are unlikely unless markets reverse their new higher view of the path of the Bank of England policy rate.”

With affordability continuing to be stretched, many prospective buyers and homeowners may find stability in modest pricing but may not anticipate sharp increases in the near future..

Buy-to-let challenges could open doors for first-time buyers

The Buy-to-let market continues to face pressures, with the recent Budget adding to the cost of market entry. As Keith notes, these changes may ultimately ease competition, creating new opportunities for first-time buyers.

“The Budget has increased the up-front cost of entering the market. That reduction in competition may help around 150,000 First Time Buyers get on the housing ladder. But they have their own challenges. More of them will pay Stamp Duty as the threshold is reduced from £425,000 to £300,000. And mortgage rates are set to be slightly higher post-Budget.”

While some buy-to-let landlords may find the market increasingly difficult, first-time buyers could see these changes as a potential opening to secure their first property, even as mortgage costs present their own hurdles.

House price stability could bring certainty amidst persistent inflation

Although inflation is down from its peak, it hasn’t quite loosened its grip on household budgets. Keith observes that inflation might have a minor uptick due to rising energy bills in the final quarter of the year, alongside upward pressure on rents.

“Inflation has proved slightly stickier than expected. After falling below target in September, higher energy bills will see a rise in Q4. There is still upward pressure on rents. Some of the increase in government investment is likely to leak into higher inflation. Household finances are looking better on the back of strong gains in earnings. But it may make take longer than many expect before they feel able to commit to major purchases..”

For those navigating the housing market, steady house prices could provide a measure of security, even as other costs of living remain elevated.

Budget’s impact on Q1 2025 and economic outlook

The latest Budget marked a clear shift in government spending, with higher spending likely to give growth a boost in the new year. However, there may be a trade-off in the form of slightly increased inflation and interest rates.

“It was clear something had to change. And the Budget certainly did that. Higher government spending feeds directly into growth and this should strengthen next year. But slightly higher inflation and interest rates may well be the cost.”

As we look to 2025, the economic landscape is healthier than it was a year ago, yet uncertainties linger, especially as global conditions could lead to inflationary pressures.

In the year ahead, cautious optimism remains the tone of the conversation. Although affordability issues persist, there’s hope that market stability will help more people progress on the property ladder. As always, brokers will be essential partners in navigating this evolving market, guiding clients toward mortgage options that align with their needs.

Here's to a successful 2025, with The Mortgage Lender by your side!

Within this article we have provided links to various external sources of guidance. Please note, we are not responsible for the content or availability of any external linked sites.