Despite an easing in annual house price growth from 3.4% in December to 3% in January, average values in the UK reached a high of £299,138 at the start of the year, a lender’s data showed.
The Halifax House Price Index showed that, month-to-month, house prices increased by 0.7% on average, compared to a decline of 0.2% in December.
Strong house price growth continues in Northern Ireland
The highest annual property price inflation was seen in Northern Ireland at 5.9% to average £205,473. This growth was slightly lower than the 7.3% year-on-year rise recorded in December.
In Wales, house prices increased by 3.6% annually to an average of £227,397. Lower house price growth was recorded in Scotland, where there was a 2.4% uplift to £210,690.
In England, house price growth in the North East outpaced the North West, with an annual jump of 5.2% year-on-year to £178,696. This is the first time since September 2023 that the North West has not seen the strongest annual house price growth in England.
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The highest house prices in the UK were in London, averaging £548,288 following a 2.8% annual increase.
Affordability and supply holding buyers back
Amanda Bryden, head of mortgages at Halifax, said the UK housing market started the year “on a positive note” despite annual growth being at its slowest rate since July 2024.
She added: “Affordability is still a challenge for many would-be buyers, but the market’s resilience is noteworthy. There’s strong demand for new mortgages and growth in lending. With a stamp duty increase looming, some of this demand may have come from first-time buyers eager to complete transactions before the end of March.
“Despite geopolitical uncertainties, and waning consumer confidence, other key indicators look fairly positive for the housing market. The Bank of England has made its first base rate cut of the year, and there are probably more to come. Household earnings are expected to continue outpacing inflation – albeit that gap may narrow – easing some of the financial pressure still being felt from the cost-of-living squeeze.”
Bryden continued: “As things stand, mortgage rates are likely to hover between 4% and 5% in 2025, influenced by both global financial markets and domestic monetary policy. Over the past year, buyers have been getting used to this new normal, understanding that rates are unlikely to return to the historical lows of 1%.
“But the fundamental issue in the housing market remains the lack of supply. This long-term trend, coupled with a gradual improvement in affordability, should support further modest house price growth this year.”
Jason Tebb, president of OnTheMarket, said the slowdown in annual growth suggested affordability was “keeping a lid on property values”.
“Higher interest rates have dampened activity, so the latest rate cut from the Bank of England will be crucial in giving the market a boost. As we approach the end of the stamp duty concession in March, it will also give the market some needed impetus for later in the year, particularly if expectations of further rate cuts come to fruition,” he added.
Mark Harris, chief executive of SPF Private Clients, said: “Modest house price growth is being underpinned by borrowing costs, which, while softening, remain higher than many borrowers were paying just a few years ago.
“With the Bank of England cutting interest rates this month, and the expectation of further reductions to come, this should encourage borrowers to make their move.
“Swap rates continue on a downwards path, with some lenders dropping their mortgage rates, in part reversing recent increases. The latest rate cut was largely expected by the markets and has been factored into pricing already, but a continual decline in swaps would enable lenders to price more keenly, easing borrowers’ affordability concerns.”
