UK housing market ready for growth, but delivery on reforms is key

The UK housing market stands on the brink of renewed growth, but the momentum hinges on the government’s ability to follow through on promised reforms, policy implementation and funding commitments. All eyes are now on how these promises translate into real-world action.

Q1 2025 saw a robust start to the year, partly fuelled by stamp duty changes that came into effect in April. These changes triggered a surge in property transactions as buyers rushed to benefit from the higher threshold.
House sales in Q1 and Q2 increased by 17% compared to the same period in 2024, with a 12-month rise of 16% up to 30 June 2025.

The announcement of the new National Housing Bank and a fall in interest rates have contributed to a generally optimistic market sentiment, but concerns remain around affordability for first-time buyers and the cost of debt for smaller housebuilders.

Regional house price trends: north slows, outer London rebounds

House prices rose by 1% in Q2, though growth has steadied in regions that experienced sharp increases in 2024 and early 2025:

• North and North West: growth slowed to less than 1% in Q2, despite strong 12-month increases of 4.24% and 5.55% respectively, largely due to increased property supply.
• West Midlands and East Anglia: both regions saw a decline in house prices during Q2.
• Outer London: recorded a 1.16% increase, outperforming central London, which remains below 1%. London is forecast to grow only 15% by 2029, compared to a UK average of 24.5%.
• Northern Ireland: achieved modest Q2 growth of 1.4%, but nearly reached double-digit growth over the past 12 months at 9.66%.

Rightmove data shows asking prices declined by 1.2% in July. Meanwhile, Savills has revised its annual forecast for 2025 from a 4% rise to just 1%.

With house price growth concentrated in the North and affluent areas, a clear strategy is needed to align housebuilders and local authorities. The focus must shift toward building in high-demand areas, particularly for affordable housing.

House sales: Q2 decline follows Q1 stamp duty surge

House sales fell in Q2 2025, following a surge in Q1 as homeowners rushed to complete transactions ahead of the April stamp duty threshold changes.

Sales in Q2 were down 11% compared to the same period in 2024. However, this decline is largely offset by the sharp increase in Q1 activity, resulting in an overall 17% increase in sales for the six months to 30 June 2025, compared with the same period in 2024.

Despite the Q2 dip in completed sales, almost 500,000 homes were listed for sale, the highest figure in seven years. This indicates growing market traction, as sellers respond to rising buyer demand, stabilising prices and improved mortgage affordability, supported by the latest interest rate cut to 4%.

Mortgage approvals continue to surpass 2024 levels

Mortgage approvals declined from Q1 levels but remained 2.4% higher than Q2 2024, and up 6.2% for the six months to 30 June 2025 compared to the same period last year.

While this growth, alongside record listing volumes, suggests a more buoyant market, 34% of Q2 mortgage approvals were for remortgages, signalling that approvals for new home purchases remain relatively low.

Affordability continues to be a major hurdle for both first-time buyers and existing homeowners seeking better mortgage deals. Many first-time buyers continue to rely on parental support to fund larger deposits in order to meet loan-to-value (LTV) and loan-to-income (LTI) thresholds. Meanwhile, some existing homeowners face challenges refinancing, as income multiples required by lenders prove difficult to meet.

By the end of 2025, it is forecast that 2.2 million people will be living in multi-generational households, and 3.8 million young adults (ages 21–34) will still be living with their parents. This underscores the urgent need to expand access to affordable housing options, including shared ownership, Help to Buy and flexible mortgage products.

As part of the government’s “Leeds Reform”, the Chancellor has announced a relaxation of mortgage lending rules to ease access for first-time buyers and support broader housing growth targets. In parallel, the FCA has launched a review of existing mortgage requirements.

While these changes could unlock home ownership for many, there is a risk that, without a corresponding increase in housing supply, these reforms may simply fuel demand, pushing prices higher and worsening affordability in the short term.

Lenders remain cautious, particularly regarding high LTI lending, amid concerns that house price increases may be temporary in a market still constrained by limited supply.

UK mortgage lending rates: lowest five-year fix since 2022

In Q2 2025, the average two-year mortgage rate for 95% loan-to-value (LTV) mortgages fell to 5.16%, while five-year fixed rates dropped below 5%, the lowest levels recorded since Q3 2022.

Despite persistent inflationary pressures and a sluggish jobs market, the Bank of England (BoE) reduced the base interest rate to 4% in August. Notably, this decision followed a rare second vote by the Monetary Policy Committee (MPC), the first time in its history such a measure was required, underlining the growing complexity of the economic environment.

RSM Economist Tom Pugh anticipates one further rate cut in 2025, with interest rates forecast to reach 3.5% by mid-2026. However, he notes there's currently only a 50/50 chance of a cut in November, the next scheduled opportunity under the MPC’s quarterly timetable.

The housing market outlook and key dates to watch in 2025

The housing market enters the latter half of 2025 with a sense of cautious optimism. Government policy, increased investment and renewed focus on housing supply are beginning to take effect.

However, progress remains dependent on collaboration between housebuilders and local authorities to deliver against local housing targets.

Planning reform remains a critical area for action, and the Chancellor is under increasing pressure to accelerate implementation and fully mobilise the National Housing Bank to unlock additional housing activity.

The FCA’s mortgage simplification rules, expected in Q3 2025, aim to ease access to more affordable mortgage products and support higher LTI thresholds, key factors in improving affordability, especially for first-time buyers.

Housebuilders are preparing for increased activity, with many advancing planning applications across multiple sites and forecasting faster growth once policy changes take full effect.

RSM housing market predictions

• House prices will increase by 1-2% during 2025, a reduced increase from 4%.
• Over the next five years, house prices are expected to grow by 24%, with London lagging at a 15% rise.
• We maintain our prediction that housing volumes will increase in 2025, but now forecast a slower start 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.
• The mortgage reform will increase borrowing capacity for homeowners and further stimulate the housing market.

To learn how these developments could affect your business, please get in touch with Kelly Boorman or your usual RSM contact.