"Average prices have risen 2% in just three months, and at 4.1% the annual rate of inflation is still higher than it was in every month of 2024 except December."
- Jonathan Hopper, CEO of Garrington Property Finders
Average UK house prices rose by 4.1% year-on-year in January, a modest slowing in the annual pace of growth compared with December's figure of 4.7%, the latest Nationwide house price index shows.
Despite this, house prices increased by 0.1% month-on-month, buoyed by increased buyer demand.
Robert Gardner, Nationwide's chief economist, said: “The housing market continues to show resilience despite ongoing affordability pressures. As we highlighted in our recent affordability report, while there has been a modest improvement over the last year, affordability remains stretched by historic standards. A prospective buyer earning the average UK income and buying a typical first-time buyer property with a 20% deposit would have a monthly mortgage payment equivalent to 36% of their take-home pay – well above the long-run average of 30%.
“Furthermore, house prices remain high relative to average earnings, with the first-time buyer house price to earnings ratio standing at 5.0 at the end of 2024, still well above the long run average of 3.9. Consequently, the deposit hurdle remains high. This is a challenge that has been made worse by the record increase in rents in recent years, which, together with the cost-of-living crisis more generally, has hampered the ability of many in the private rented sector to save.
“Therefore, it’s not surprising that a significant proportion of first-time buyers have to draw on help from friends and family to raise a deposit. In 2023/24, around 40% of first-time buyers had some assistance raising a deposit, either in the form of a gift or loan from family or friends, or through an inheritance."
Jonathan Hopper, CEO of Garrington Property Finders, commented: “January’s cooling price inflation is a welcome sanity check for a market which built up a significant head of steam at the end of 2024.
“Let’s be clear, the reduction in the pace of price growth is modest. Average prices have risen 2% in just three months, and at 4.1% the annual rate of inflation is still higher than it was in every month of 2024 except December.
“There’s still plenty of demand in the market too. Estate agents rang in the New Year with a jump in buyer enquiries and the online property portals reported record search traffic over the Christmas period.
“Yesterday the Bank of England confirmed a surprise jump in the number of mortgages approved in December, and these will feed through into purchases in the coming weeks and months.
“Two factors are powering this momentum - the final weeks of the ‘stamp duty stampede’ as many first-time buyers race to complete their purchases before the stamp duty thresholds change at the end of March.
“The second is the feeling that cheaper mortgages are on their way. Next week the Bank of England is widely expected to reduce its Base Rate, and this will gradually reduce the cost of borrowing.
“Yet for all the momentum in the market, price rises are neither inevitable nor unquestioning. Buyers remain intensely price-sensitive, and the abundance of properties for sale means many won’t hesitate to walk away from homes they like but feel are overpriced.
“The pace of price rises varies widely by region too, and there’s a clear north-south divide. Price rises are modest or even flat in some very desirable parts of southern England, and here we’re seeing buyers ask for, and get, significant discounts.”
Jonathan Handford, managing director at Fine & Country, added: "January is often a strong indicator of the year ahead in the property market, and this year’s performance so far paints a positive picture.
"Although growth slowed in January year-on-year, month-on-month prices rose slightly.
"Strengthening buyer confidence, supported by a more stable economic backdrop, continues to drive demand. Last year’s steadying inflation rates and the gradual reduction in interest rates helped to restore market sentiment, providing a solid foundation for growth in 2025.
"Another key factor driving activity is the anticipation of tax changes, particularly the adjustments to stamp duty thresholds set to take effect in April. This has encouraged buyers to act sooner rather than later to maximise potential savings.
"Other indicators also point to a strong start to the year. Zoopla recently reported that the market in early 2025 is outperforming both 2024 and 2023, with buyer demand up 13% year-on-year in January and 10% more homes available. While rising demand typically puts upward pressure on prices, greater housing supply could help temper excessive price increases, ensuring the market remains accessible.
"A key demographic that will determine the market’s sustainability this year is first-time buyers. While the looming stamp duty changes have fueled activity among this group, a long-term approach is needed to prevent a slowdown once the changes take effect. Without continued support measures, affordability concerns could resurface, making it harder for first-time buyers to get onto the property ladder.
"Looking ahead, a ‘likely’ interest rate cut by the Bank of England in February could further boost the market by prompting lenders to lower mortgage rates. However, the extent and timing of cuts depend on inflation trends — if inflation eases, rate reductions are likely, but persistent pressures could delay them.
"Overall, the UK property market enters 2025 with signs of stability held up by modest growth. The coming months will reveal whether these trends hold or if affordability concerns and inflation start to weigh on growth. With key policy changes ahead, a balanced approach will be vital to sustaining stability and accessibility for buyers."