Mid-2025 Market Check-In: Subdued Prices, Rising Potential
So, we made it halfway through 2025, in spite of some of the bearish chat around the Government, house prices limping forward mostly, and the spectre of the Renters’ Rights Bill hanging over us. Of course we did. We are fighters!
What did we learn in H1 of this year? Inflation is not quashed, if we needed to learn that one again - a massive hike in the cost of employing people (10.7% more expensive to employ a minimum wage worker from April 1st 2025, if they are full time) filtered through into a bad month for inflation, with prices rising 1.2% in April alone. We are back to “well above” 3% territory, whilst also cutting the base rate of interest.
Mortgage rates are moving downwards very slowly - whilst we had a couple of wobbles early on, and rates actually moved upwards, we are between 0.1% and 0.2% cheaper on the cost of mortgage money than we were 12 months ago. Slow and steady wins the race on that one - but it looks like a world of 5%+ mortgage rates on limited company buy-to-lets is here to stay….
Unemployment is going the wrong way - so job security for readers, and for their tenants or prospective tenants, is weaker than it has been for several years. Growth has stalled, although tariffs also distorted the data in the first quarter, making things look a lot better than they were - that’s dropped off in the second quarter’s growth figures.
Housebuilding has a great setup for growth now, but needs that magic ingredient - more time. There’s still a planning process to get through and the outturn figures for housebuilding still look very limp indeed, leaving the administration with guaranteed egg on face when it comes to counting just how many homes they will have built (and in reality, the private sector will have built, not them) over this parliament. However, there is scope for development in a market that should start rising soon.
This is the other magic ingredient that you might have missed, because it hasn’t reared its head yet. The market is filled with ex-rentals, as landlords dispose of their stock and investors redeploy capital from the South to the North if they are staying in the game. There have not been this many houses on the market for over 10 years. This excess supply is keeping prices very subdued, but it is too early to call the crack-up boom as a definite.
However, everything we need is there for it. Easing of mortgage regulations, and the FCA basically telling mortgage lenders to change the way they were doing things in March 2025 will be seen as a big event when house prices are once again increasing above inflation. The supply glut will need to work itself out, perhaps over the next 6-9 months, or even 12, before we see decent acceleration upwards. However, the ONS had inflation at 3.6% for June and house price growth nationwide at 3.6% for May, and so things are just about keeping pace (after inflation, houses are actually cheaper now than they have been for 12 years, interestingly). I believe we’ve got 6%-7% years ahead of us, perhaps not until 2027, although 2026 will do well in my view.
Why? Borrowers can borrow 28k (on average) more than they could before March. Rates have at least stabilised, so those holding out for a return to the “old days” are being coached or bullied out of those positions as they can’t keep waiting and waiting. All in all - not loads to report, but plenty coming based on the foundations laid in the first half of 2025!
