As we enter 2025, there are several key trends that will shape the housing market over the next 12 months.

Affordability will remain a big theme across both the sales and rental market, as will the north-south divide. Mortgage rates will also be front of mind for many buyers and agents will be wondering when investors will start buying again.

With extra costs loaded on to business in the wake of the Budget, there are some key areas for agents to focus on to stay ahead in 2025.

House prices to increase by 2.5% in 2025 but north-south divide remains

The housing market has been far more resilient to the return to higher mortgage rates than many expected. This is down to mortgage regulations, introduced a decade ago, stopping a debt-fuelled boom and bust in house prices as borrowing costs increased. A rapid growth in incomes has helped to reset affordability more quickly than expected.

House prices registered modest single digit price falls over 2023 in response to higher borrowing costs and prices have rebounded in 2024 rising by 2%.

We expect average mortgage rates to remain in line with current levels over 2025 meaning limited scope for house prices to rise quickly. We expect house prices to increase by 2.5% over 2025 with 1.15m sales, up from 1.1m in 2024. We expect house prices to increase steadily by 7.5% over the next 3 years, below the growth in incomes.

There remains a clear north-south house price divide. Prices are rising faster in more affordable markets led by Northern Ireland, Northern regions of England and Scotland but price rises are lagging behind. Higher mortgage rates have reduced buying power most in areas with higher house prices and annual house price inflation remains below 0.5% in southern regions of England.

First-time buyers (FTBs) are the largest buyer group in 2024, with Zoopla attributing 36% of purchases to this group, with lower mortgage rates and higher rents making buying a more attractive option than a year ago. Zoopla predicts that FTBs will remain the largest buyer group in 2025, although the reversal of SDLT thresholds in March 2025 will have an impact on the cost of buying a home, particularly in southern England.

Rents to rise 4% over 2025 and by 10% over next three years

The unaffordability of home buying has been one factor behind a 27% increase in rents over the last 3 years, outpacing the growth in earnings over the same period (19%). Strong employment growth and record immigration have boosted demand at a time when the overall size of the private rented market has remained static at 5.5m homes.

More corporate investment is welcome and this has largely offset private landlord sales but even corporate investors are buying more slowly in the face of higher borrowing costs. Private landlords remain a vitally important group to support supply in the rented sector.

We expect rents to rise by 4% over 2025 and by 10% over the next 3 years – the impetus for growth will come from areas where renting is more affordable. Rental inflation will be weaker in the most expensive markets where rents have risen the most in recent years which covers London and the major cities. Rents continue to rise quickly in areas adjacent to bigger cities with better value money.

When will landlords start ramping up new investment?

Gross yields from residential property have been rising and are set to increase further over 2025 and into 2026. Lower base rates and the strength of the cashflow from renting are likely to support a steady recovery in new investment despite greater regulation.

It’s unlikely to be a flood of new investment but we believe the worst of the sell-off phase is now behind us. The growth is more likely to come from professional landlords with portfolios of 5+ homes who account for one in five landlords but half of rented homes according to the latest Private Landlords Survey by MHCLG.

More business to do but a need to remain efficient in the face of costs and regulation

With 1.15m housing sales expected over 2025 and prices edging higher, this means a greater commission pool for agents from sales while rising rents will support underlying income from lettings and management. At the same time, agents are facing greater regulation and higher costs of doing business as a result of measures in the Budget.

One key trend for agents to consider as they prospect for business or seek buyers for existing stock is that more buyers are looking further afield to secure more value for money. Many of these buyers are also would-be sellers. Half of buyers sending enquiries through Zoopla are searching for their next home locally, however nearly a third of enquiries come from buyers considering a relocation (10 miles+).

Upsizers are cautious but for the right home, they will make a move and property features are particularly important which is a key consideration when listing a property and creating a property description.

Finally, a third of sellers last year had only been in their home for between three and seven years so it’s important to keep re-prospecting your back book of customers with news and insight as circumstances change and you want to be first to take that call in 2025.

Richard Donnell is executive director at Zoopla