UK house prices rose by 0.7% in January, reversing a 0.2% dip in December and pushing the average property price to a new record high of £299,138, according to the latest Halifax House Price Index.

Annual price growth eased slightly to 3.0%, down from 3.4% in the previous month, marking the slowest rate of increase since July 2024.

STEADY DEMAND AMID AFFORDABILITY CHALLENGES

While affordability remains a challenge for many buyers, the housing market has shown resilience, with continued demand for mortgages. Some of this demand may be driven by first-time buyers aiming to complete purchases ahead of a potential stamp duty increase at the end of March.

Amanda Bryden, head of mortgages at Halifax, noted that despite economic uncertainties, broader market conditions remain relatively stable. The recent base rate cut by the Bank of England, with the potential for further reductions, could provide additional support. Meanwhile, wages are expected to continue outpacing inflation, although the gap may narrow, easing some of the financial pressure caused by the cost-of-living squeeze.

Mortgage rates are predicted to remain between 4% and 5% in 2025, shaped by both global financial conditions and domestic monetary policy. Over the past year, buyers have adjusted to this higher interest rate environment, with expectations that rates will not return to the historic lows of around 1%.

However, the long-term issue of housing supply remains a key factor affecting market dynamics. Bryden highlighted that this shortage, combined with gradual improvements in affordability, could contribute to further modest house price growth throughout the year.

REGIONAL PRICE VARIATIONS

The pace of annual house price inflation has slowed in two-thirds of the UK’s nations and regions, though Northern Ireland continues to record the strongest annual price growth. Prices in the region rose by 5.9% in January, though this was a notable slowdown from the 7.3% growth recorded in December. The average property price in Northern Ireland now stands at £205,473.

In England, the North East has overtaken the North West as the region with the strongest annual house price growth, rising by 5.2% year-on-year to an average price of £178,696. This is the first time since September 2023 that the North West has not led house price growth among English regions.

Wales saw an annual price increase of 3.6%, bringing the average property price to £227,397. In Scotland, where price growth remained more subdued, the average property is now worth £210,690, up 2.4% compared to the previous year.

London remains the most expensive region in the UK, with average house prices rising by 2.8% to £548,288.

OUTLOOK FOR 2025

While economic conditions remain uncertain, factors such as wage growth, interest rate movements, and ongoing supply constraints will continue to shape the housing market. With affordability gradually improving and the potential for further rate cuts, Halifax expects house price growth to remain steady but modest in the months ahead.

Mark Harris, chief executive of mortgage broker SPF Private Clients, said: “Modest house price growth is being underpinned by borrowing costs which, while softening, remain higher than many borrowers were paying just a few years ago.

“With the Bank of England cutting interest rates this month, and the expectation of further reductions to come, this should encourage borrowers to make their move.

“Swap rates continue on a downwards path with some lenders dropping their mortgage rates, in part reversing recent increases. The latest rate cut was largely expected by the markets and has been factored into pricing already but a continual decline in Swaps would enable lenders to price more keenly, easing borrowers’ affordability concerns.”

Amy Reynolds, head of sales at Richmond estate agency Antony Roberts, added: “January was busier than normal, with a lot of market appraisals, which bodes well for a busy spring market.

“Increased activity from first-time buyers has helped, with more sales agreed in chains where someone is keen to take advantage of the stamp duty concession before it ends in March. The benefit to the first-time buyer is instant as it is real cash in their pocket, allowing someone to buy who might not have been able to, and the government perhaps needs to consider further stimulus for the market in its Spring statement.

“While all this suggests growing confidence, it’s too soon to say for certain how the market will unfold.”