How strong is the UK housing market?

This article was written by Keith Church, 4most’s Head of Economic Modelling, and was originally published in Mortgage Solutions.

2024 was a year of recovery, but structural problems likely to persist

Despite the Labour government’s 2024 election manifesto claim that “the dream of homeownership is now out of reach for too many young people,” the UK housing market has shown unexpected strength. According to UK Finance, 2024 witnessed a 16% increase in loans to first-time buyers, challenging prevailing narratives about housing affordability.

The market gained significant momentum throughout the year, driven by two key factors: falling interest rates and the reduction of the nil rate stamp duty threshold in April 2025. This surge in activity resulted in 334,000 mortgages being issued last year, as reported by UK Finance. This is a figure reminiscent of the healthy market conditions seen in 2018 and 2019.

However, these encouraging statistics raise an important question – just how robust is the current housing market?

Relative success in mortgage market

Growth has been achieved, but not without some pain. In 2024, the average first-time buyer’s combined capital and interest payments totalled approximately 22% of their income, according to UK Finance. This has forced buyers to adapt, often by committing to longer mortgage terms or providing substantially larger deposits to make homeownership feasible.

However, this “success” should be viewed in context. It partly reflects the intense pressures in the rental market, where living costs have escalated even more dramatically. While first-time buyers may allocate 22% of their income to monthly mortgage repayments, new private tenants typically face rental costs of 29% of their income, up from 25.3% in 2019. Although homeowners incur additional maintenance costs, the current rental market remains particularly challenging.

The buy-to-let (BTL) sector is also facing headwinds. The Renters’ Rights Bill adds another layer of complexity to the already challenging economics of BTL investments. This comes at a time when new landlord instructions continue to decline, according to RICS.

The government faces a significant task in tackling long-term challenges within the housing market. Realising any of its housing ambitions will require sustained and strategic action.

Challenges on the horizon

The government’s manifesto pledged to “work with local authorities to give first-time buyers the first chance to buy homes and end entire developments being sold off to international investors before houses are even built.” Even if we see the 1.5 million new homes materialise, greater access to capital in the domestic BTL sector does not guarantee FTBs will be first in the queue.

Whilst plans to relax mortgage lending criteria for FTBs is a positive start, more can be done to alleviate affordability challenges.

In addition, the government’s housebuilding target cannot happen through planning reform alone. Even without competing demands from infrastructure projects and addressing difficulties with the school system and our hospitals, it is ambitious to say the construction industry can deliver these homes.

Profitability is another challenge for housebuilders. According to the Department for Business and Trade, construction material prices remain far higher than they were historically. If the government wants to prioritise building more homes, then they need to rethink how to incentivise housebuilders to help the investment stack up. Against the ongoing public finance pressures, the industry will be watching closely to see if they can deliver on their promises.

What are the options?

Arguably, government targets that are agnostic on ownership, and which prioritise the need for decent and secure housing for as many people as possible are the right measure of success. The Renters’ Rights Bill has these aims at its heart and it closes some of the gap.

In the mortgage market, the current mini boom in FTB approvals may well subside after the rush to beat the Stamp Duty deadline. While spending 22% of income on housing – or considerably more in London and the South East – may now be the ‘new normal’, it remains far from sustainable. Rising wages and financial support from the bank of mum and dad may help prop up the market, but the reliance on parental wealth only underscores deeper affordability issues.

The Renters’ Reform Act acknowledges the private rental sector’s role in both providing flexibility and serving as a stepping stone to homeownership. Buy-to-let investment has long been a pillar of this sector, but with government bond yields offering high, risk-free returns, rental property investment is losing its appeal.

It often feels like housing is the UK economy in microcosm. Certainly, the fortunes of the two have often moved in parallel. Lower interest rates could provide a boost to both, but even a lowering of Bank of England’s base rate to 4% by the end of 2025 may not be enough to revive market confidence. While a return to the ultra-low rates of the past is unlikely, stagnation could bring further downward pressure. The other path to low rates is global economic turmoil, which could shift housing policy down the priority list altogether.