In December, the rise in UK house prices picked up pace, yet some specialists have cautioned that the surprise surge in inflation figures unveiled on Wednesday could begin to cool the mortgage market.
The average cost of a home in the UK was £268,000 in December 2024, marking a 4.6% annual boost, an uptick from the 3.9% increase seen in the year leading up to November, according to the latest data from the Office for National Statistics (ONS).
On the same day, ONS revealed that the Consumer Prices Index (CPI) inflation rate shot up to 3% in January, a leap from 2.5% in December. This inflation rise was higher than predicted, with forecasts of a 2.8% rise. Despite major banks reintroducing sub-4% fixed-rate mortgages in February after a reduction in the Bank of England base rate, some financial pundits reckon these attractive deals may not stick around for long.
Matt Smith, a mortgage expert at Rightmove, said: “This morning’s unexpectedly high inflation figure is likely to have a knock-on effect to some of the early momentum we were starting to see in mortgage rates coming down, as the financial markets react today.
“We’d hoped for a sustained period of gradual falls, but with inflation increasing by 0.2 (percentage points) more than the market expected, we can expect to see a change in that direction.
“Any news which deviates from market forecasts, is likely to cause rates to rise or fall. Over the coming days, the sub-4% rates that had only just started to come out may be the first to go as mortgage lenders re-look at what they can offer home movers.”
Jason Tebb, president of OnTheMarket, said: “Two interest rate cuts in the latter half of last year and one this month have had a positive knock-on effect on confidence, which the market relies so heavily on.”
“With inflation rising unexpectedly to 3%, the next rate reduction may be pushed back a little as the Bank of England keeps a close eye on inflationary pressures in coming months.”
According to the ONS, December 2024 saw average house prices sprout up in England to £291,000 (4.3% annual growth), in Wales to £208,000 (3.0%) and in Scotland to £189,000 (6.9%), all over the 12 months leading up to December 2024.
Northern Ireland boasted an average house price of £183,000 for the fourth quarter of 2024, jumping 9.0% from the year before. In England, it was the North East leading the charge with the highest annual house price inflation at 6.7%, while London seemed to scrape by with the most sluggish annual growth, flatlining at 0.0%.
Garrington Property Finders’ chief Jonathan Hopper said: “The number of homes for sale is so abundant in some areas – even in highly sought-after, prime postcodes – that buyers find themselves firmly in the driving seat and able to drive a hard bargain on price.”
House prices in southern England are set to see restrained growth, as real estate experts suggest those putting properties on the market soon will need competitive pricing to catch buyers’ eyes. The imminent reduction of stamp duty discounts from April has sparked a rush among some homebuyers to seal deals ahead of time, affecting regions where the levy is applicable, namely England and Northern Ireland.
According to Richard Donnell, executive director at Zoopla: “Latest data from the ONS shows a strong growth in house prices driven by increased sales activity over 2024 and a stamp duty rush in the final quarter of 2024.”
“We expect the rate of growth in the ONS index to slow over 2025 due to much greater choice of homes for sale, up 11% on last year and higher stamp duty costs for most buyers from April.
“While the rate of inflation has increased, we don’t expect much change in average mortgage rates. Additionally, it’s positive that average earnings continue to rise faster than house prices, helping to reset housing affordability and improve access to the market.”
Jonathan Handford, managing director at realtor group Fine & Country, remarked: “If inflation continues to climb, the Bank of England may take a more cautious approach, potentially delaying further rate cuts this year. For buyers, this adds uncertainty, as higher inflation could keep borrowing costs elevated for longer.
“Those unable to complete purchases before the stamp duty changes may shift focus to broader economic policies, closely watching inflation and interest rate decisions before committing.
“Looking ahead, the key question remains whether the economy can sustain this positive trajectory. While further rate cuts could stimulate the market, much will depend on the Government’s ability to manage inflation effectively.
“If stability continues, we may see a more balanced housing market emerge, with steady demand supported by improving financial conditions rather than short-term policy-driven urgency.”
The ONS also revealed that average UK private rents saw an annual increase of 8.7% in January 2025.
This marked a slowdown from the 9.0% rise over the 12 months to December 2024 and fell short of the record-breaking annual surge of 9.2% in March 2024.
Nathan Emerson, chief executive of property professionals’ body Propertymark, commented: “Increases in rental prices across the UK have been an ongoing concern and our member agents continue to emphasise key issues regarding the continuous trend of lack of rental stock versus an ever-growing number of tenants looking for homes.
“Selling up altogether or turning to the short-term letting market is becoming a more attractive option for landlords due to the challenging legislative changes and increased financial liabilities they face.”