Bank of England: Mortgage payments to rise as house prices continue to climb

Bank of England governor Andrew Bailey recently said “the world is too uncertain” to make accurate predictions over interest rates and when they would come down again.

How will the housing market react in 2025 then with prices rising and interest rates still showing no sign of dropping?

How much did house prices increase in 2024?

According to the Nationwide house price index, UK house prices rose 4.7% year on year in December 2024.

By the end of 2024, the average UK home was priced at £269,426 – a rise from £268,144 a year earlier. This is despite buyers facing many affordability challenges, with Nationwide claiming the housing market remained ‘remarkably resilient’.

Terraced housing saw prices increase the most, with average prices up by 4.4% compared to flats (4%), semi-detached (3.4%) and detached properties (3.2%).

Robert Gardner, Nationwide’s Chief Economist, said: “Mortgage market activity and house prices proved surprisingly resilient in 2024 given the ongoing affordability challenges facing potential buyers. At the start of the year, house prices remained high relative to average earnings, which meant that the deposit hurdle remained high for prospective first-time buyers. This is a challenge that had been made worse by record rates of rental growth in recent years, which has hampered the ability of many in the private rented sector to save.

“Moreover, for many of those with sufficient savings for a deposit, meeting monthly payments was a stretch because borrowing costs remained well above those prevailing in the aftermath of the pandemic. For example, a typical mortgage rate for someone with a 25 per cent deposit hovered around 4.5% for much of the year, three times the 1.5% prevailing in late 2021, before the Bank of England started to raise the Bank Rate.

“As a result, it was encouraging that activity levels in the housing market increased over the course of 2024 with the number of mortgages approved for house purchase each month rising above pre-pandemic levels towards the end of the year.”

What’s happening with interest rates?

The Bank of England has estimated that 4.4 million mortgage holders should expect to see their mortgage payments increase by 2027.

They estimate that mortgage payments could increase by around £146 per month for homeowners coming off a fixed rate in the next two years.

According to current figures, 8 in 10 mortgage customers have fixed-rate deals and even if mortgage rates do fall, homeowners are still expected to pay more per month than their current fixed rate.

How is the housing market expected to perform in 2025?

2025 is expected to be a challenging year for both buyers and sellers due to the uncertainty over interest and mortgage rates and the upcoming changes to Stamp Duty Land TAX (SDLT).

The temporary increase of thresholds for SDLT from September 2022 is coming to an end on April 1st 2025, meaning first-time buyers will now face a 5% charge on properties valued at £300,000 and up, compared to £425,000.

Other house buyers will face stamp duty on properties over £125,000 instead of the £250,000 that has been set for the past two years.

While they remain coy on the subject, the Bank of England is expected to slightly reduce interest rates throughout the year, starting in February.

But, with stamp duty changes coming in April, the housing market could be primed for a busy first quarter with buyers aiming to finish their purchases before the thresholds are dropped to their previous rates.

Speak to ABC+ Warranty

With house prices and mortgage rates on the rise, and the stamp duty changes coming up, 2025 could be an unpredictable year for the UK housing market.

Fortunately, at ABC+ Warranty, we’re always keeping up to date with the latest industry news and trends. You can, too, by checking out our other news articles and blogs.

Plus, if you’re looking to purchase or build a property, have a look through our building warranties.

For anything else, don’t hesitate to contact us by calling 0161 928 8804.