A mixed bag for the UK housing market in early 2025

The first quarter of 2025 brought a blend of progress and pressure for the UK housing market. House prices continued to rise, mortgage approvals remained steady and the Bank of England (BoE) implemented another rate cut just after the quarter ended. There remains a sense of optimism in policy sentiment, but the pace of change on the ground has not fully met expectations. Economic uncertainty and delivery challenges continue to cast a shadow over the outlook.

Regional house price trends: north outpaces the south

UK house prices rose by 1% overall in Q1, with the North continuing to outperform:

• Northern Ireland led with a 4.1% increase
• North-West saw 2% growth
• West Midlands and Yorkshire and the Humber followed closely at 1.8%.

Northern Ireland and the North-West have consistently ranked among the top locations for house price growth over the past year.

Conversely, London and the South-West saw average house prices fall by around 0.5%. Investment and development activity in the capital slowed, impacted by building safety changes and rising costs. The Building Safety Levy, set to take effect in Autumn 2026, will add further compliance and operational costs to the industry.

These pressures are being felt on the ground. Our recent survey of 200 real estate and construction businesses in February highlighted tax as a growing investment barrier. London and the South are particularly exposed, with higher land and transaction costs than other regions.

In May, a new London Plan consultation document was launched, aiming for a housing target of 88,000 homes per year. This comes at a critical time, as 23 London boroughs reported no housing starts in Q1, while the value of private housing project starts in the capital fell by 70% compared to a year ago. The city continues to face challenges attracting and retaining younger talent as rent, house prices and household costs continue to increase, resulting in families migrating from the city for more affordable housing.

Stamp Duty deadline triggers surge in UK property transactions

Mortgage approvals hold steady

New home approvals dipped by 3% compared to the previous quarter. Nevertheless, the total of 195,000 approvals still exceeded the four-year quarterly average of 190,000. Meanwhile, an uptick in remortgages contributed to an overall rise in mortgage approvals.

The immediate outlook for the housing market remains challenging when analysing supply levels. Rental listings showed a 24% decrease in available properties in the year to March 2025 compared to five years ago, and Glenigan's April analysis highlighted a 48% drop in planning approvals compared to 2024. However, housing starts and construction activity on paused sites have resumed in various regions. The Office for Budget Responsibility's (OBR) forecast on planning policy reform is promising for the long term, but swift action is needed.

In Q1, the average two-year mortgage rate for 95% loan-to-value (LTV) mortgages rose to 5.59%, while the 75% LTV rate increased to 4.61%, both slightly above their levels six months earlier. Despite a split vote, the BoE lowered interest rates to 4.25%. Inflation jumped to 3.5%, yet RSM Economist Tom Pugh still expects two further interest rate cuts later this year. The FCA have also launched a review of their mortgage requirements to further support sustainable home ownership.

The housing market outlook and key dates to watch in 2025

The industry has responded positively to the newly announced National Housing Bank, which will relieve some of the tensions in the delivery of new homes. The new bank will be publicly owned and backed with £16bn of financial capacity and is set to unlock a further £53bn of private investment, this will accelerate growth in the housing market providing much needed access to finance to the SME market.

With the £39bn funding committed to affordable homes, the planning reform and the new National Housing Bank set up, mobilisation of new procedures is now key to turn the dial of build volumes. The industry now needs to see and feel the pace of change on the ground, with government bodies and local authorities working collaboratively to support housebuilders in delivering at scale.

Housing starts have increased, and residential investment in March 2025 surpassed the five-year average. This positive trend is mirrored in the longer-term outlook, with large housebuilders becoming more active in the land market, and planning applications should follow.

On 11 June, the Chancellor delivered the new Labour government’s first spending review, outlining crucial infrastructure commitments for future housing supply in the UK. On 8 July, attention will shift to the US as the 90-day pause on reciprocal tariffs expires. What happens next may introduce fresh global uncertainty.

RSM housing market predictions

• House prices will increase by 4% during 2025.
• Over the next five years, house prices are expected to grow by 23%, with the North-West and North-East seeing increases of 29%, and London seeing a 17% rise.
• We maintain our prediction that housing volumes will increase in 2025, but now forecast a slower start to the spring months than previously expected.
• The devolution of planning and a focus on housing demand calculations will foster more collaborative partnerships with local authorities, leading to geographical changes in build volumes.
• Implementation of changes to the planning reform are likely to continue to be delayed, resulting in frustration on the ground.
• Changes to inheritance tax (IHT) in pension funds could divert previously invested funds—now subject to IHT in estates—into property, with investors viewing the industry as a growth area.

To learn how this might affect your business, please contact Kelly Boorman or your usual RSM contact.