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Market outlook: More modest rates of rental growth ahead

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After years of high rental growth, the pace of increases in achieved rents for new market lets is slowing, with some markets experiencing this deceleration more rapidly than others.

A key factor influencing this trend is affordability, which constrains further growth where financial strain is evident. In London, for example, affordability has reached just above 32%, contributing to a significant slowdown in rental growth from 9.0% a year ago to 1.7% currently.

Additional market indicators, such as data from RICS, suggest a normalisation in both demand and supply levels, particularly for demand, which had been elevated in recent years. As a result, rental growth is expected to stabilise, with an average annual increase of 3.4% projected over the next five years.

With reduced pressure in the market, rental turnover may rise, as previous tight conditions led many renters to renew existing leases rather than move. This shift towards more modest growth reflects a broader market adjustment in response to affordability constraints and easing demand.

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Market outlook: improved property sales activity

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The market entered 2025 on solid foundations, with activity levels expected to strengthen over the year. Forecasts indicate that property prices will grow at a rate of 3.1% in 2025 and 3.7% in 2026, maintaining a trajectory similar to that of 2024.

Mortgage approval and transaction rates have stabilized after a period of weakness from late 2022 through early 2024, aided by recent interest rate cuts that have improved market sentiment. However, while lower rates have encouraged activity, long-term mortgage rates are expected to settle around 4%, with the current 5-year swap rate—the basis for mortgage pricing—standing at this level.

Despite these improvements, persistent inflation above target levels means that further interest rate cuts by the Bank of England will be gradual and cautious. Housing affordability has improved overall, though price sensitivity will persist in high-cost regions such as London and the South East, where affordability constraints remain more pronounced.

The pace of price growth will depend on affordability headroom across different market segments. A key opportunity for the sector, beyond increased transaction volumes, lies in the new build market as government initiatives push toward house-building targets.

In summary, market activity is predicted to improve throughout 2025, with modest price growth aligning with previous trends. Interest rate reductions have bolstered confidence, but their future trajectory will be measured due to inflationary pressures. Regional disparities in affordability will shape price growth, and new housing developments present a significant area for expansion.

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First-time buyer monthly mortgage now 15% cheaper than renting

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A significant shift in housing affordability has emerged as rising rental prices have made homeownership, on average, 15% cheaper than renting, reversing a prior trend.

The average monthly rent in England and Wales currently stands at £1,250, whereas the typical mortgage repayment for first-time buyers is £1,066. This comparison is based on a first-time buyer purchasing a £240,000 home with a 20% deposit, a 25-year mortgage term, and a 5-year fixed interest rate of 4.4%.

The decline in mortgage rates has further supported this shift, with monthly mortgage payments for the average first-time buyer home having peaked in mid-2023 before decreasing by 10%.

However, despite the relative affordability of mortgage payments compared to rent, the challenge of saving for a deposit remains a significant barrier, as a 20% deposit for an average-priced first-time buyer home amounts to £48,000.

This data underscores a changing financial landscape where purchasing a home may now be a more economical option than renting, provided buyers can overcome the upfront financial hurdles.

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Uptick in mortgage approvals

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Mortgage approvals in January 2025 increased by 18% compared to January 2024, with 66,200 approvals recorded.

This surge is largely attributed to buyers rushing to secure properties before the stamp duty nil-rate threshold reverts from £250,000 to £125,000 in April.

While this urgency may lead to a quieter market post-April, broader indicators suggest a modest rise in demand and transactional activity, even for sales unlikely to be completed before the deadline.

The latest RICS UK Residential Market Survey highlights an increase in market appraisals compared to the previous year, reinforcing expectations of a steady, albeit cautious, rise in transactions.

However, while the removal of stamp duty incentives introduces additional costs, economic uncertainties related to inflation and mortgage rate fluctuations may temper buyer enthusiasm as the year progresses.

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Sales blossom in spring

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Spring brings a sense of renewal, not only in nature but also in the property market, where activity surges as flowers bloom and daylight extends. Data indicates that two-thirds of homes listed for sale in February and March successfully complete transactions, marking the highest success rate compared to any other months.

February and January also have the fastest average time to find a buyer at 51 days, with March and April following closely at 52 days.

This seasonal trend underscores the significance of spring as an optimal period for home sales, likely driven by increased buyer interest and favorable market conditions.

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First-time buyers make a comeback

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The number of first-time buyers entering the property market increased by 19% in 2024 compared to 2023, reaching 341,068. Although this remains below the 2022 peak of 369,870, it marks a significant recovery following the decline in 2023. This resurgence is likely linked to improved mortgage affordability, as interest rates have stabilised, offering greater financial certainty to prospective buyers.

First-time buyers accounted for 54% of all mortgaged home purchases, demonstrating their substantial presence in the market. Additionally, 62% of these transactions involved joint purchases, indicating a trend toward shared homeownership. The average age of a first-time buyer is 33, reflecting the demographic profile of those stepping onto the property ladder. These trends suggest a revival in first-time home ownership, driven by more favourable financial conditions.

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Renters are putting down roots

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Renter behaviors are shifting significantly, with renting no longer seen solely as a temporary phase before homeownership but increasingly becoming a long-term lifestyle choice. As tenants establish deeper connections with their rental properties, landlords are adapting to meet these evolving expectations. A substantial 73% of landlords are open to renters personalizing their homes, reflecting a growing flexibility in property management. Additionally, 34% of landlords collaborate with renters to approve decoration plans, further enabling tenants to create spaces that feel truly their own. Moreover, 20% of landlords involve renters in selecting tradespeople, granting tenants a greater sense of agency over maintenance and improvements. These trends indicate a progressive transformation in the rental market, where both landlords and renters are fostering more cooperative and accommodating relationships, ultimately redefining the traditional dynamics of renting.

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Good news on mortgage rates

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The mortgage market has seen a positive development as increased competition among lenders has led to interest rates dipping below 4% for certain mortgage deals with a 60% loan-to-value (LTV) ratio. The chart illustrates the trend in fixed mortgage rates over the past year, comparing 5-year and 2-year fixed rates. While rates have fluctuated, the latest data from February 2025 indicates that some mortgage providers have introduced rates under the 4% threshold, as highlighted by the yellow reference line. Both 5-year and 2-year fixed mortgage rates demonstrate a downward trend, suggesting a growing competitive pricing environment aimed at attracting borrowers. The data, sourced from Dataloft by PriceHubble and the Bank of England, reflects a broader shift in lending conditions, potentially offering favourable borrowing opportunities for homebuyers seeking lower mortgage costs.

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Truuli_Homes have a hold

When homes have a hold on us

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The process of buying a home is often compared to falling in love, as both experiences involve emotional highs and lows. According to data from the English Housing Survey 2023–2024, homeowners’ length of stay in one place varies significantly based on their mortgage status. Mortgage-free owner-occupiers remain in their homes for an average of 23.8 years, demonstrating long-term stability and attachment to their property. In contrast, owner-occupiers with a mortgage tend to stay for a significantly shorter period, averaging 9.3 years. This difference suggests that financial obligations and loan terms may influence mobility, whereas outright ownership provides greater permanence. The findings highlight the varying degrees of commitment homeowners have to their properties based on financial circumstances.

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Truuli expects the market to “Spring” into action

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As March arrives, longer days and brighter skies draw more home buyers out to hunt for their dream property. Spring sees a surge in home sales, with 27.1% of transactions occurring during this season – the busiest of the year.

Selling benefits in spring:

  • Enhanced aesthetics: Natural light showcases properties beautifully.
  • Garden appeal: Highlighting blooming green spaces is crucial.
  • Increased demand: More buyers mean quicker sales and potential offers above the asking price.

Preparing your home for a spring sale:

  • Boost curb appeal by attending to exterior details like clean windows and gutters.
  • Conduct a thorough spring cleaning to present a well-maintained home.
  • Address any minor repairs that could catch a buyer’s eye.

Ready to sell or buy? Contact us at 0330 043 0002

Leigh Thomas – Truuli Property Expert

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