Housing market activity proved more resilient than many expected in 2025, despite subdued consumer sentiment and mortgage rates remaining around three times higher than their post-pandemic lows.

Reflecting on the year, Robert Gardner, chief economist at Nationwide, said: “The word that best describes the housing market in 2025 is ‘resilient’. Even though consumer sentiment was relatively subdued, with households reluctant to spend and mortgage rates around three times their post pandemic lows, mortgage approvals remained near pre-Covid levels.

“Stamp duty changes that took effect at the beginning of April created volatility through the spring and summer. Activity spiked in March as purchasers brought forward transactions to avoid paying additional tax, and this led to some softness in the following months. However, the underlying picture was little changed as demand held up well throughout.”

Gardner said house price growth evolved broadly in line with Nationwide’s expectations, slowing from 4.7% at the end of 2024 to 2.1% in the middle of 2025, before easing further to 1.8% in November.

He added: “As a result, prices were close to the all-time high recorded in the summer of 2022 as the year drew to a close.

“With price growth well below the rate of earnings growth and a steady decline in mortgage rates, affordability constraints eased somewhat, helping to underpin buyer demand. The first-time buyer share of house purchase activity was above the long run average, supported by easier credit availability, with the share of high loan to value lending reaching its highest level for over a decade.”

REGIONAL DIVIDE NARROWS

Northern Ireland was the standout performer in 2025, with annual house price growth averaging 11% in the first nine months of the year, almost four times faster than the UK average of 3%.

Gardner said: “This strong performance mirrored that in the border regions of Ireland over the same period.

“Despite these significant price gains, house prices in Northern Ireland are still around 6% below the all-time high recorded in 2007, while UK prices are almost 50% higher over the same period.”

As a result, the typical home in Northern Ireland is now priced at around 79% of the UK average, compared with around 25% above the UK average in 2007.

Elsewhere, Wales broadly tracked the UK average, while Scotland recorded slightly stronger growth. London was the weakest performing region, with annual growth averaging 1.3% over the first nine months of the year.

This continued a longer-term trend of northern regions outperforming the south, narrowing the price gap to its lowest level since 2013. The average home in northern England is now almost 58% of the value of a southern property, compared with lows of around 48% in 2017.

OUTLOOK FOR 2026

Looking ahead, Nationwide expects housing market activity to strengthen modestly in 2026, supported by gradually improving affordability.

Gardner said: “We expect housing market activity to strengthen a little further as affordability improves gradually via income growth outpacing house price growth and a further modest decline in interest rates. We expect annual house price growth to remain broadly in the 2 to 4% range next year.

“The changes to property taxes announced in the Budget are unlikely to have a significant impact on the market.”

He noted that the planned high value council tax surcharge will not come into force until April 2028 and will affect fewer than 1% of properties in England and around 3% in London.

However, increases in taxes on property income may dampen buy-to-let activity further and constrain the supply of new rental homes, potentially maintaining upward pressure on rents.

ENCOURAGING OUTCOME

Nathan Emerson, chief executive at Propertymark, said: “Aspiring and current homeowners will no doubt have felt reassured heading into the end of the year, with falling inflation and base rates improving affordability and helping more buyers consider their next move during 2026.

“Given the number of policy and economic changes the housing market experienced throughout 2025, including legislative updates, mortgage rate fluctuations, and the Autumn Budget, a period of price stability is an encouraging outcome.”

Emerson added that stable prices should provide a firmer foundation for decision-making among buyers and sellers and help support confidence through 2026.

LATE BUDGET EFFECT

Ian Futcher, financial planner at Quilter, said the late timing of the Budget had contributed to a quieter end to the year.

“With key fiscal decisions pushed later into the year, many prospective buyers and movers chose to put plans on ice until they had clarity on the policy landscape,” he said.

“Against that backdrop, Nationwide’s figures showing prices slipping back by 0.6% over the month reflect a market that was firmly in ‘wait and see’ mode.”

Futcher said that although the Bank of England’s December rate cut marked an important turning point, a rapid recovery in activity remained unlikely in the short term.

“With demand still tentative, lenders are likely to compete hard for business, particularly among lower-risk borrowers,” he said.

“That competitive pressure should help keep mortgage rates edging lower over time, even if the improvements are gradual rather than dramatic.”