This week’s decision to hold the Bank of England base rate will put a dent in house sales early next year say estate agents.

That’s because mortgage interest rates will remain the same, meaning property prices will still be out of reach to thousands of would-be buyers. 

Two-thirds of bank committee voted for reduction

The Bank’s Monetary Policy Committee voted 6-3 to retain the rate at 4.75% rather than reduce it by 0.25 percentage points as some economists surmised. Those in favour of retaining the current bank rate said it was necessary in order to manage inflation. The Bank is currently aiming for an inflation target of 2%. Inflation sat at 2.6% last month – 0.3% higher than in October’s figure.

Despite this, many property experts are confident that there will be a fall in the base rate next year, and subsequently a drop in mortgage interest rates. Certainly, buyers and lenders alike will be hoping for a fall in rates as a result of Stamp Duty charges reverting to previous ratios on April 1. 

Mortgage expert at property portal Rightmove, Matt Smith said he expected a typical mortgage interest rate to sit at around 4% by the end of next year. But he added: “This is dependent on the impact of a wide variety of unpredictable factors, including geo-political tensions and inflation.”

Former Royal Institute of Chartered Surveyors (Rics) chairman, Jeremy Leaf said a cut in the base rate would be particularly welcomed by first-time buyers, especially in light of increasing rental rates. 

Scotland tops the league for house transactions

Meanwhile, in terms of property sales, Scotland topped the league for 2024. That’s according to recently released government figures. The Office of National Statistics data shows there were 54,428 property transactions north of the border, equating to 15% of the UK total. 

The next highest region for property sales was the South East, with 14% of the total. Third was the North West, at 11%. Northern Ireland saw least properties sold, with a percentage rate of just 3.4%. Despite this, Belfast was the UK city in which most homes were sold, at 7333 properties. Second was Edinburgh and third, Glasgow. A total of 3994 properties were sold in Leeds, England’s highest city total, outside London.

More than one quarter of surveyors reported a rise in property prices in their region during November. That compared to just 16% of members of the Royal Institution of Chartered Surveyors (Rics) in October.

The statistics bode well for the first few months of next year. That’s when the market is expected to speed up as would-be buyers try to beat the Stamp Duty changes at the start of April.

Property Portal Rightmove’s Tim Bannister reported recently that he expected the whole of 2025 to be a busy year for house transactions, predicting there would be around 1.15 million completed.

But senior economist at Rics, Tarrant Parsons, didn’t share his optimism. He believes currently high interest rates and the broader macroeconomy will still make buyers hesitate on such large purchases.

His concerns are borne out by figures released by the Office for National Statistics this week. The government data showed that the cost of the average property in England last year was 18.2 times above typical household income of £34,569. That was for the year to March last year while, at the same time, the typical property was valued at £298,000 – a ratio of 8.6. For poorer households the ratio was 18.2.

Mortgage rates to fall next year

Fixed mortgage rates are currently around 4.83% and 5.08% per cent for five-year and two-year products respectively. It’s expected these will reduce to around 4% by the end of 2025. They may even reduce in 2026, but analysts don’t expect them to fall to pre-cost of living rates. The expectation they will fall though is prompting more people to take out two-year mortgages.

More first-time buyers than last year

Rightmove reports there are 13% more first-time buyer enquiries than there were at the same time last year. Rents continue to rise, although Rics reported a 1% drop in enquiries list month. This may, of course, be due to the time of year.

In order to battle the house crisis Sir Keir Starmer has recently vowed to build 300,000 new homes annually. The previous Conservative government promised similar construction figures but 200,000 was the highest number of homes built in any one year.

As expected, the Bank of England declared a second base rate cut this week, reducing the amount from 5% to 4.75%. 

This is due to a lowered inflation figure, which is now sitting at less than 2%. It’s a rate which the Office of Budget Responsibility say could last until 2029, giving homebuyers renewed confidence of stable mortgage interest rates for the foreseeable future. The Bank’s first base rate cut this year was in August when it fell from 5.25% to 5%.

In anticipation of a 0.25% drop, mortgage rates had already begun falling in recent weeks. They are expected to go down even further in the next few days and weeks, giving a welcome injection to the property market. At the moment mortgage rates are the lowest for two years. 

Base rate predictions for a longer trajectory

The base rate is expected to continue to fall over time, but this will be at a slower pace than previously predicted, following Labour’s ambitious borrowing and spending plans in the recent Budget.

Not only are there more properties coming on to the market – to the extent it is fast becoming a buyer’s market – but mortgage approvals too are on the up. October was in fact, the fourth month in a row where, with a total of 65,647 mortgages given the green light, figures have surpassed those of the previous month. 

House prices at highest rate ever

Meanwhile, house prices reached their highest total ever in October, with the average property now sitting at £293,999. That’s according to the latest Halifax House Price Index. The price has increased 3.9% compared to the same period last year. Regionally, the biggest increase was in the north west of England, where the value of property jumped 5.9% year-on-year to £235,587.

The fall in mortgage interest rates isn’t the only fuel being added to the property market fire, however. The looming stamp duty deadline of April 1 is also accelerating growth. That’s because buyers are looking to secure a housing deal before stamp duty relief rates revert to their previous higher levels. Expect much activity from now and well on into 2025.

Figures released by the Office for National Statistics this week show property prices rose 2.8% from August 2023 to the same month in 2024. 

The official statistics – which are reported every quarter – don’t deviate greatly from recent house price indexes and show that the market is indeed ‘on the up.’ House prices were, in fact, around £8000 higher than the previous year, bringing the cost of the average property to £292,924. August was the sixth month in a row in which property prices were higher on a year by year basis. 

North West of England shows biggest jump in prices

In terms of regional variation, the biggest prices jumps were in the North West of England. There the average property jumped by 4.5% to £225,248.

The poorest property price rises over that 12-month period to August 2024 were in the South West, where property jumped just 0.8% to £320,774.

Analysts attribute the growth in property prices to increased interest in the market, thanks to lower mortgage interest costs and a settled economy with Labour proving triumphant in the general election. Added to this, interest rates are predicted to fall even further before the end of the year – thanks to an expected Bank of England base rate cut.

Property prices expected to remain stable for remainder of year

The increased interest in the market isn’t expected to wane up any time soon, meaning house prices are expected to remain stable for the foreseeable future.

Marc von Grundherr, Director of capital estate agents’ Benham and Reeves, isn’t expecting the upcoming Autumn Statement to bring any property purchasing incentives. 

He added: “The housing market is likely to march on undeterred and we’re set for a very strong end to the year, despite the usual seasonal lull that comes with the Christmas period.”

And, of course, it wasn’t just in England that house prices exceeded their previous peak. Property in Northern Ireland rose by 6.4% year-on-year to £185,025. In Scotland the jump was 5.4% to an average £199,971 and in Wales, bricks and mortar investments rose 3.5% to £222,925.

An increase in the sale of second homes is putting up rental demand. 

Changes to tax regulations and a possible increase in capital gains tax has seen landlords list their properties – to the extent almost one third of all properties listed last month were second homes. That in itself could signal an increase in existing rents as demand begins once again to far outstrip supply. 

Majority of surveyors expect property prices to rise

The findings, from the latest report of The Royal Institution of Chartered Surveyors (RICS) backed up other house index figures released last week from the Nationwide and property portal Zoopla. They pointed to an accelerated UK property market – one in which property prices were expected to rise over the next year, according to more than half of surveyors interviewed. 

Analysts refer to reduced mortgage interest rates as the kickstart the market needed. And these rates are expected to fall even further with expectations that the Bank of England will reduce its base rate by a quarter percent in early November. The Bank cut it from 5.25% in August – the first reduction in four and a half years. 

Meanwhile Finance Minister Rachel Reeves warns she may increase capital gains tax from 33 per cent to 39 per cent in the budget at the end of this month.

Difficulties for today’s first-time buyers put into perspective

From second home owners to first time buyers, upmarket estate agency Hamptons this week showed just how difficult it is to access the property market today. 

Their report showed that the typical mortgage payment for Generation Z (who were born in the late 1990s) is double that paid by previous generations. The typical sum for Generation Z is £1,739 a month. Millennials have had it much easier. Those born in the 1980s pay roughly £863 a month, while Baby Boomers (born in the 1960s) have been enjoying much lower mortgage costs of £775 on average.

Not surprisingly, the costs are down to a mixture of house price increases far outstripping inflation.