The UK housing market is entering a phase of moderation as the supply of homes for sale increases more quickly than the number of sales being agreed. As a result, house price inflation is slowing, and sellers will need to approach pricing with care if they are serious about moving in 2025.

A More Balanced Market

House price inflation eased slightly in February, dipping to 1.8% from 1.9% in January. While prices are still up compared to this time last year when inflation was in negative territory at -0.2%, the pace of growth is clearly slowing. We expect this trend to continue into the spring and summer months.

The key factor behind this moderation is the rise in the number of homes coming onto the market. The volume of properties for sale is now 11% higher than it was a year ago, offering buyers more choice and reinforcing the shift towards a buyer-friendly market. With nearly 30% of annual listings typically occurring between March and May, this increase in supply is expected to continue in the near term.

Despite the easing in price growth, buyer activity remains resilient. Sales agreed have increased by 5% year-on-year, with demand 10% higher than the same period last year. However, mortgage rates have plateaued, averaging around 4.4% and expectations for further base rate cuts have diminished. This means buyer affordability is unlikely to improve significantly through cheaper borrowing. That said, strong wage growth, up 6% in the past 12 months, remains a key support for purchasing power.

From April, many buyers particularly in London, will face higher stamp duty costs. These added costs are expected to influence negotiations, as buyers seek to offset the increase through lower purchase prices.

Regional Divergence Grows

The current property landscape is marked by a clear north-south divide. In southern England and London, supply is rising more quickly than demand, which is suppressing house price growth. Across the South East, South West, East of England and London, annual inflation is now running at 1% or less.

London, in particular, is experiencing a lull in activity. Demand has fallen by 3% year-on-year, largely due to a rush of first-time buyers (FTBs) purchasing homes before the April stamp duty changes. Around 80% of FTBs in the capital will now pay stamp duty, compared to less than half under the previous rules. This has led to a notable decline in demand across all price brackets.

In contrast, markets in the North of England amd the Midlands are outperforming. In these areas, buyer demand has increased by more than 10% year-on-year, while the growth in supply has been more modest. This imbalance is supporting above-average price growth. The North West has seen house price inflation reach 3%, while Scotland has recorded a 2.5% increase over the past year.

Affordability is a key driver in these areas. With average house prices typically ranging from £130,000 to £220,000 well below the national average of £267,500. There is greater scope for further growth.

First-Time Buyers and the Stamp Duty Shift

The impact of the April stamp duty changes is being felt most acutely in London, where many FTBs brought forward their purchase decisions to avoid the increased costs. This has created a short-term drop in demand, particularly at the lower end of the market.

Elsewhere in England, where FTBs purchasing properties under £300,000 will continue to benefit from exemptions, demand remains strong. The South East and Midlands are seeing an uptick in first-time buyer activity, much of it displaced from London in search of better value for money.

Outlook for the Market

Looking ahead, we anticipate that sales agreed will continue to rise gradually throughout 2025, as more sellers, many of whom are also buyers enter the market. However, with supply continuing to grow and mortgage rates remaining static, we expect house price inflation to moderate further.

A slowdown in price growth is not necessarily negative. A stable market allows for more predictable transactions and encourages both buyers and sellers to engage with confidence. That said, with increased competition and choice for buyers, it is more important than ever for sellers to price realistically if they wish to secure a sale.

For those planning to sell this year, seeking expert guidance from local estate agents will be key. A well-informed pricing strategy, aligned with current market conditions and local demand, will be essential for achieving a successful outcome in 2025.