Housing market resilient despite ongoing affordability challenges

Lender Nationwide reports that it was encouraging to see activity levels in the housing market increase over the course of 2024. The number of mortgages approved for house purchases each month rose above pre-pandemic levels towards the end of the year.

Similarly, after starting the year with small annual declines, the pace of house price growth moved firmly into positive territory, approaching 4% in November.

Upcoming changes to stamp duty are likely to generate volatility, as buyers bring forward their purchases to avoid the additional tax. This will lead to a jump in transactions in the first three months of 2025 (especially in March) and a corresponding period of weakness in the following three to six months, as occurred after previous stamp duty changes. This volatility will make it more difficult to discern the underlying strength of the market.

Nationwide adds that provided the economy continues to recover steadily, it expects the underlying pace of housing market activity to strengthen gradually. This is expected as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth, with the latter likely to remain broadly in the 2-4% range in 2025.

Zoopla reports that the private landlord sell-off has peaked. It is now a question of when market conditions will be right for landlords to increase investment and expand rental supply. This is still some way off and will require lower base rates and higher yields.

One-off pandemic factors that drove the boom in rental demand in 2022 are now behind us, and tighter visa rules are beginning to reduce the pressures caused by higher levels of migration.