- Higher mortgage rates and stamp duty costs set to reduce buying power in 2025
House price growth will slow next year thanks to higher mortgage rates and stamp duty costs, according to two leading property firms.
Property experts from both Zoopla and Knight Frank are predicting just a 2.5 per cent annual increase in the average property price in 2025.
This would be a slowdown on current levels of growth being recorded by some house price indices.
House prices rose 3.9 per cent year-on-year in October, according to Halifax’s latest figures, while the most recent data from the ONS has annual house price growth running at 2.9 per cent in the 12 months to September.
Experts at Zoopla think that buyers faced with higher stamp duty costs will want this reflected in the purchase price, which will act as a drag on house prices in 2025.
Significantly more homebuyers will pay stamp duty from April 2025 when rates in England and Northern Ireland will revert to their previous levels.
Buyers budgets hit: Significantly more homebuyers will pay stamp duty in 2025, which Zoopla expects will hit house price growth by up to 1%
In total, Zoopla estimates that 83 per cent of homebuyers will pay stamp duty from April 2025, up from 49 per cent paying today.
Zoopla says that without the stamp duty increases next year, house prices would potentially rise by up to 3.5 per cent.
The property firm Knight Frank sees higher mortgage rates as the other key factor weighing heavy on house price growth.
The estate agent has downgraded its forecast for next year from 3 per cent annual growth to 2.5 per cent as a result of a spike in mortgage rates in recent weeks.
How much have mortgage rates risen?
Mortgage rates have jumped since the Chancellor Rachel Reeves set out her economic plans in the Budget earlier this month.
Since early October, the lowest five-year fixed rate mortgage has risen from 3.68 per cent to 4.14 per cent while the lowest two-year fix has gone from 3.84 per cent to 4.22 per cent.
Knight Frank expects this to cause more downwards pressure on prices and sales volumes in the short-term.
Over the next five years, it is expecting cumulative growth of 19.3 per cent. This is slightly more pessimistic than Savills, which forecast house prices will increase by 23.4 per cent by the start of 2029 earlier this month.
Higher purchase costs: Percentage of sales hit by high stamp duty costs from April 2025
How will stamp duty increase impact home buyers?
The change in the stamp duty threshold will hit existing owners looking to buy a home in the £125,000 to £250,000 price range, where a third of buyers are currently searching, according to Zoopla.
Home movers currently pay stamp duty if their home costs more than £250,000, but in March 2025 this will drop back to £125,000 – the level it was at before temporary changes were made in the 2022 mini-Budget.
Homebuyers in this price band will see stamp duty up to £2,500 or 1 per cent of the property value.
The impact will be more keenly felt by buyers in the Midlands and Northern England, where up to 67 per cent of sales sit in this price range.
Zoopla says the ‘average home’ priced at £300,000 will see the amount of stamp duty double to £5,000 from April 2025.
A first-time buyer purchasing a property up to the value of £425,000 currently pays no stamp duty. However, this limit is due to drop back to the old threshold of £300,000.
This means the same £425,000 purchase will be subject to a £6,205 tax bill.
Data: This shows the percentage of buyers in each region which are in each stamp duty band
According to Zoopla, an additional 20 per cent of first-time buyers will now be liable to pay stamp duty.
This means 40 per cent of first-time buyers will pay full or partial stamp duty from April next year.
The extra costs for buyers will predominantly fall on those in southern England.
Richard Donnell, executive director at Zoopla said: ‘The growing complexity of stamp duty makes assessing its impact on market activity and pricing increasingly difficult.
‘Whilst an additional stamp duty payment of £2,500 might be more manageable for those purchasing £1m homes, it’s a much bigger cost for those buying cheaper homes.
‘Faced with this higher cost, homebuyers will want it reflected in the price they pay for their home and will seek to make offers, keeping prices rises in check over 2025 and into 2026.
‘These changes are likely to take 0.5 to 1 per cent off house price growth in 2025 hitting buyers in higher value markets and re-enforcing a north-south divide for price growth.’