Homeowners across the UK are being compelled to accept lower offers on house purchases, as concerns surrounding mortgage rates and economic uncertainty following the recent Budget take hold.
According to data from Zoopla, houses have been selling for an average of 3.6% below their asking prices in recent weeks, equating to a discount of around £17,600. This marks an increase from the summer, when properties were being sold for 3.2% below asking prices, or approximately £16,600.
Factors Contributing to Buyer Hesitancy in the Current Housing Market
Zoopla attributes the growing disparity between asking and selling prices to heightened price sensitivity among buyers. The property platform noted that the Budget announcement had exacerbated economic concerns, making prospective homeowners more cautious about committing to purchases.
Further compounding the situation are rising mortgage rates. Earlier this month, the average interest rate on a five-year fixed mortgage experienced its largest increase since August 2023. This has added further strain to household budgets, dampening confidence in the housing market.
Factors Driving Buyer Caution:
- Economic uncertainty: Concerns about jobs and the wider economy post-Budget.
- Rising mortgage rates: Sharp increases in interest rates, making borrowing more expensive.
- Inflation pressures: Higher costs of living affecting buyer confidence.
Economic Factors Impacting Borrowing Costs and Inflation Outlook
Economists have pointed to Rachel Reeves’s maiden Budget as a contributing factor in pushing up borrowing costs, alongside uncertainty linked to the upcoming US election. Last week, the UK’s 10-year borrowing costs reached their highest level in over a year, amid concerns about how Reeves’s spending plans will be funded.
Adding to the pressure, inflation has surged to an eight-month-high, with analysts predicting further price rises. This has prompted speculation that the Bank of England may have to maintain elevated interest rates for an extended period.
Outlook for House Prices and Market Activity in the Coming Year
Zoopla predicts that this cautious climate among buyers will keep house price growth subdued over the next year. House prices rose by 1.9% in the 12 months to November, with the average price standing at £267,500.
Looking ahead, house prices are forecast to increase by around 2.5% in 2025, with an estimated 1.15 million house sales expected to be completed that year.
In contrast, 1.1 million housing transactions were completed in 2024. However, market activity is anticipated to surge in the coming months, as homeowners and buyers rush to finalise transactions before stamp duty increases take effect in April.
| Metric | 2024 | 2025 (Forecast) |
|---|---|---|
| House price growth | 1.9% | 2.5% |
| Average house price | £267,500 | Estimated increase |
| Number of house sales | 1.1 million | 1.15 million |
Changes to Stamp Duty Set to Impact Market Dynamics
The recent Budget outlined significant changes to stamp duty, which are likely to influence market activity in the short term. From April, the surplus rate of stamp duty for second-home buyers will rise from 3% to 5%.
Additionally, the basic threshold at which most buyers will begin paying 2% tax will be halved, from £250,000 to £125,000. For first-time buyers, the threshold will drop from £425,000 to £300,000.
In the weeks following the Budget announcement, Zoopla reported a 23% increase in the number of sales compared to last year. Approximately 283,000 transactions are anticipated to complete in the first half of 2025, representing the largest sales pipeline in four years.
Stamp Duty Changes Overview:
- Second-home buyers: Surplus rate rising from 3% to 5%.
- General buyers: Threshold reduced from £250,000 to £125,000.
- First-time buyers: Threshold lowered from £425,000 to £300,000.
While activity is expected to pick up in the short term, experts warn that the longer-term outlook remains tempered, with growth likely to remain modest over the coming years.
