Speculation concerning the future performance of the property market is a major topic among industry experts in light of the Autumn Budget delivered on 30 October. Considering the positive uptick in market performance and growth over the past quarter, landlords, property experts, and consumers are eager to see these remain firm heading into the new year.
The latest forecast by the Office for Budget Responsibility (OBR), an independent body which collects data and offers analysis on public finances, provides useful information pertaining to the future state of the property market. Illuminating the state of house prices will supply important information to track for next year, as well as some indicators concerning how the property market will fare in the long term.
What to Expect for House Prices?
The aforementioned OBR forecast predicts that residential property prices will increase to 2.5% for 2024-25, whereas commercial property prices are expected to see a dip at –0.5%, though this is expected to bounce back to 3.3% for 2025-26. Such figures set the tone for much of the anticipated projections by 2030, with the overall growth forecast between now and then for residential property at 15% and commercial property at 10.7%.
Note that these figures are subject to change as the financial landscape evolves. Even the latest figures witnessed notable changes from the OBR forecast conducted in March, where the overall price growth forecast by 2030 was expected for residential property at 7.3% and commercial property at 1.8%.
The OBR commented that ‘average house prices remain above our March forecast throughout, driven by the recent resilience and out forecast for higher nominal incomes.’
This information is situated alongside the recent Nationwide House Price Index reporting that the annual price growth has dipped to 2.4% in October, down from the two-year high of 3.2% in September. Although failing to achieve the 2.8% increase projected by the Reuters poll, it is nevertheless a respectable increase, not least as it’s the third-highest rate of annual growth since December 2022.
For these reasons, the expectation is that property prices will grow steadily throughout the next six years, though the short-term will see a contraction for commercial property. Ed Phillips, CEO of Lomond, commented that ‘now that the dust has settled and the property market has escaped largely unscathed, we expect the rate of growth seen across the market to once again accelerate, particularly with further cuts to interest rates on the cards.’
What Variables to Look Out for?
As previously mentioned, it is crucial to keep in mind that property prices correspond to particular market conditions – conditions which are subject to flux and change. One example is the recently introduced stamp duty rate increase from 3% and 5% for purchasing multiple properties, alongside the expectation that first-time buyer stamp duties will return to £300,000 from £425,000 and £125,000 from £250,000 for all subsequent properties.
The immediacy of this decision is already having an impact on current property transactions. Kelsey Phillips, head of specialist lending at Arose Finance, commented that ‘within minutes of the Chancellor announcing the additional surcharge, our investor clients were on the phone to estate agents renegotiating purchase prices lower.’ An additional consequence is the expectation that there will be an increase in property transactions during the first quarter of 2025, where homebuyers and sellers will be eager to exchange properties prior to the introduction of lowered stamp duty thresholds.
From a broader point of view, the combination of wage growth, lowered interest rates, and market desirability inform the expected increases in property prices. According to the OBR, the average property transactions should reach 350,000 per quarter (up from the 275,000 a quarter from the March forecast).
Mortgage rates are projected to rise from 3.7% in 2024 to 4.5% in 2027, and real earnings are projected to grow from 2.4% in 2024 to 1.2% in 2025, then stalling to 0.5% in 2028, informed by the passthrough in employer national insurance contributions and consumer goods. While the nominal GDP is expected to increase by 24.9% in 2030, the real GDP is projected to increase by 10.3%.
General Thoughts
The constellation of variables – real wage growth, economic stability, property supply, interest rates – all coalesce to inform property price growth. Each plays an important role. Monitoring these metrics will enable consumers to gauge the direction of where property prices will lead.
On the contrary, Gemma Young, chief executive at Moverly, cautions that ‘whilst there is widespread optimism that the market will continue to improve as we head into 2025, there’s no guarantee that house prices will recover across the board, or at the same rate for that matter.’
Consequently, it is important to keep in mind that shifting economic trends and policies can significantly affect property prices. Yet the general expectation among industry experts is that property prices will rise at a steady rate throughout the decade. 2025 will continue to see a positive boost for residential property, although not as much for commercial property and those looking to acquire multiple properties.
