HOUSE PRICES ANALYSIS: Fall in inflation needed for ‘normal’ property market
Property market expert, Kate Faulkner OBE discusses how inflation, bases rates and the wider economy is impacting property prices right now.
This month’s property market update shows that, economically, we are in a bit of a ‘holding’ pattern at the moment. Inflation isn’t coming down consistently to its 2% target, staying high at 3% in January and dropping to just 2.8% in February, which is why base rates didn’t move down this month. Part of the reason for this is that wages are still ‘booming’, considering that in the past they have struggled to keep up with inflation.
As such, from a property perspective, because we need base rates to fall to 4% or below for a ‘normal’ market, it’s not going to be the summer or even later that this will happen, and we will need to rely on inflation falling over the coming months – and in turn, wage growth being tempered.
This is probably why, despite all the criticism of the government for raising National Insurance, if there was a time the government could implement it, it’s now. We have a shortage of workers, and inflation is too high, so if we can reduce the pressure on wage growth, that should reduce inflation, which should help reduce base rates and, therefore, mortgage rates.
And, for the property market, this would be good news. Although wage growth can be a good thing, reducing base and mortgage rates will put far more money into people’s pockets over the next few years to help them with the cost of living increases we saw during the pandemic.
Despite mortgage costs being much higher than in the past and higher than we expect long term, the property market is not only remaining resilient, but is actually managing to be better in 2025 than it was in 2024.
Property price and market indices headlines:
Price growth slows as stamp duty deadline looms, but activity remains robust
“The average price of property coming to market for sale rises by 0.5% (+£1,805) this month to £367,994, a muted price rise for this time of year.”
Oversupply weighs heavy on pricing in London and the South
“Asking prices have slipped by 0.1% since the January reading across England and Wales. Annualised home price growth is now just 1.7% overall.”
House price growth remains solid in February
“Annual rate of house price growth remained broadly stable in February at 3.9%, compared with 4.1% in January.”
Average UK house price holds steady in February
“House prices dipped by -0.1% in February (vs +0.6% in January).”
Positivity in the market
“Uplift helped by household moves ahead of Stamp Duty changes.”
Key measures of market activity increasing by over 10% YoY
“House price inflation ticks lower to 1.9% in response to higher mortgage rates and rising buying costs from April.”
Summary of the insights from this month’s indices
- The number of available homes for sale is at a 10-year high, moderating the New Year price surge.
- The stamp duty deadline will impact some regions and movers more than others, with a conveyancing log-jam expected.
- There are more than 550,000 homes sold yet awaiting legal completion, 25% more than at this time last year.
- First-time buyer purchases between £500,001 and £625,000 are most affected, with an extra £11,250 at risk for this group if the deadline is missed, with a log-jam expected as some scramble to complete before March 31st.
- Moving activity remains robust after the first full month of 2025 compared to a year ago, with the number of new sellers coming to market now 13% ahead, buyer demand 8% ahead, and sales agreed numbers up by 15%.
- Oversupply is indicated in London and the South East which both show the highest regional increases, up by 21% and 13% respectively.
- For the time being, the UK property market continues to show significant momentum. Property turnover remains higher than the previous two February readings and the three February readings prior to the COVID event.
- At just 1.9%, annualised national growth in asking rents is also behind the rate of inflation.
- House prices up 0.4% month on month.
- Recovery in housing market transactions in 2024.
- Average property price now £298,602 (compared to £298,815 in previous month).
- Annual growth remains at +2.9%, unchanged from January.
- But some evidence there is underlying momentum which further rate cuts might help sustain.
- Market recovery broadly-based but London and South East still lagging.
- In February, the average sale price of homes in England and Wales rose by nearly £2,500, or 0.7%, reaching £357,300. This marks the second month in a row of positive growth, driven by better household finances and lower mortgage rates.
- Value of houses has increased 24% over 5 years, 3x faster than the 7% growth in the price of flats.
- Strong earnings growth supporting activity, but greater supply of homes for sale is expected to keep price inflation in check.
Asking price analysis
The chart below from Rightmove shows a really interesting trend. Basically, post-pandemic, we have seen asking prices fluctuate, and in today’s world, they are pretty similar to the price they were back in 2022 when mortgage rates started to rise. Then Liz Truss’s new government managed to turbo-boost them upwards following the disastrous budget and you can see the resulting falls.
The good news is that we seem to be very close from a mortgage rate perspective to be ‘back where we were’ prior to September 2022. And, although sellers may not feel this works well for them, the other good news is properties to sell (or SSTC) are back to 20 levels, prompted no doubt by a few years of people deciding to hold off moving while rates were so high – which they could do because most people were on fixed rate mortgages and therefore not forced to sell.
Average stock levels per agent back in 2022 were around 48 properties, they then rose to 52 properties in the summer of 2023. This means last year there was a choice of 21% more properties per agent, but mortgage rates high, while now they have fallen back a bit, stock levels are around 10% higher versus the last ‘normal’ market we saw in September 2022.
And as we all know, typically the more properties available to sell, the more likely buyers are to engage as long as they can afford to purchase. With Rightmove suggesting that sales agreed are 9% higher than 2024, despite base rates taking longer than hoped to fall, the picture for the property market this month is looking really buoyant.
