UK house prices recorded a sharper-than-expected increase in February, driven by buyers closing deals ahead of changes to Stamp Duty set to take effect in April. The surge, though significant, comes amid broader market uncertainty, with affordability concerns and economic pressures still at play.
The average home price in the UK climbed 0.4% from January, reaching £270,493, according to the latest data. This represents a 3.9% increase compared to February 2024, slightly below January’s 4.1% annual growth.
Analysts had anticipated a 0.2% monthly rise and a 3.4% year-on-year increase. Despite this, housing transactions remain 6% below pre-pandemic levels, and prices are still 1.2% lower than their peak in mid-2023.
First-Time Buyers and Cash Investors Drive Demand
A significant factor behind the February increase was a surge in activity among first-time buyers looking to finalise purchases before the new Stamp Duty rules take effect in April. Currently, first-time buyers are exempt from the tax on homes valued up to £425,000, but from April, the threshold will drop to £300,000.
This has prompted a rush to secure properties before the additional tax burden takes hold, according to market analysts.
In addition, cash buyers have played a key role in sustaining demand. Transactions involving cash purchases have now surpassed pre-pandemic levels by 2%, with landlords and investors actively reshaping their portfolios in response to regulatory changes.
The increased number of homes on the market has also allowed buyers to negotiate more effectively, keeping activity levels high despite ongoing affordability pressures.
Economic Conditions Shape the Market Outlook
While February’s price growth indicates resilience, broader economic factors continue to influence market trends. Wage growth in the final quarter of 2024 reached its fastest pace since 2021, helping to support buyer confidence.
At the same time, mortgage borrowing costs remain below their 2023 peak, allowing more buyers to enter the market. Mortgage completions in 2024 were only 5% lower than in 2019, according to industry data, underscoring sustained demand.
However, inflation remains above the Bank of England’s 2% target, currently sitting at 3%, which could limit further reductions in mortgage rates.
The central bank has cut interest rates three times since mid-2024, bringing the base rate to 4.5%, but markets now expect fewer rate cuts than previously anticipated. Inquiries from first-time buyers also declined in February, suggesting that affordability concerns may curb further price acceleration.
