Homebuyers face a tough year unless Angela Rayner can work some magic

Could Angela Rayner be the government’s saviour?

The deputy prime minister has her hands on the tiller of housing policy and Labour’s promise to deliver 1.5 million new homes over the course of the current parliament. Given the way prices have gone, the importance of that cannot be overstated.

Let’s be blunt: they are far too high, with heavy demand bumping up against a chronic lack of supply. The numbers make me blanch every time I look at them.

According to building society Nationwide, 2024 ended with average price growth of 4.7 per cent, the typical British home going for £269,425. Figures from rival lender Halifax were even higher: £298,083, with growth of 4.8 per cent.

In the year to November, inflation came in at 2.6 per cent (the December data is yet to be released). Meanwhile, wages outstripped both – growing by an average of 5.2 per cent. There is a reason people like Robert Gardner, chief economist at Nationwide, describe affordability as “challenging”.

The median average salary was £37,430 in 2024. To buy Nationwide’s average home with a 90 per cent mortgage requires a deposit of roughly £27,000. Monthly repayments on a 25-year loan with the society’s current two-year fixed rate offer (5.04 per cent) come to £1,422. You would need to earn quite a bit more than the average to get that. The society will lend someone on our average salary £168,061 (per its mortgage calculator). The average home is not affordable on an average wage unless you have a really chunky deposit – say, courtesy of the Bank of Mum & Dad.

You can take this one for free: the Bank of Mum & Dad is going to be doing record business in 2025 because prices will only continue to grow. Nick Mendes, from broker John Charcol, expects them to “rise modestly, by around 2.5 per cent to 4 per cent”.

Nationwide offers a slightly wider range (2-4 per cent). Halifax goes for 3 per cent, a figure I think is about right. Most of last year’s growth came in the second half of the year. I suspect the market will continue to be frothy in the early part of 2025 as people try to avoid April’s increase in stamp duty.

If you buy a house for £295,000 ahead of that, the first £250,000 is tax-free with 5 per cent charged on the final £45,000 – a grand total of £2,250 (I’m using the government’s worked example). In April, the zero-rated portion covers only the first £125,000 with a rate of 2 per cent on the second £125,000 (£2,500 charge) and 5 per cent on the final £45,000 for a total of (ouch) £4,750.

It’s a bitter irony that any savings on that tax could easily be wiped out by the rush to avoid it. Let’s say prices jump by 2 per cent as the market heats up. The government’s £295,000 house will go for an extra £5,900 with the stamp duty charge increasing by £295 (remember, anything about £250k is taxed at 4.5 per cent).

What about mortgage rates? Any relief there? Well, Mendes says the new year has started well, with lenders in a mood to compete and rate cuts from the likes of HSBC. The markets are pricing in an imminent cut in base rates courtesy of the Bank of England. If that doesn’t happen, look out.

Prices of fixed-rate deals are governed by long-term rates expressed through the City’s interest rate swaps market. The lack of a rate cut when one is expected will have an immediate negative impact on it. Most people expect three this year. My prediction is two, which will hurt borrowers.

Mendes’s advice is to jump in if you find a good deal. I would agree.

But buying is still preferable to renting. Around Christmas, property website Rightmove reported that the average number of enquiries on each available property “is still nearly double the level it was in 2019, despite improvements in the balance between supply and demand”. Each one receives roughly 11 calls against six at the end of 2019.

Average rents outside of London hit £1,339 per calendar month, 4.5 per cent above this time last year. That’s the slowest growth since 2021, and the expectation is for even slower growth (3 per cent) in 2025. But that’s slim comfort. The drivers are the same as those facing those looking to buy. Says Rightmove: “Tenant affordability limits are vying with a lack of available homes.” Over the last five years, UK rents have risen by 40 per cent, earnings by 28 per cent. Double ouch.

All this explains why the success or failure to hit that new build target matters so much. Rayner, speaking to parliament’s housing, communities and local government committee, described 1.5 million new homes as a “stretch” target. Probably fair. Most experts doubt she’ll hit it.

To really help the rotten situation facing younger Britons, she needs to beat it. That 1.5 million shouldn’t be a stretch – it should be a floor. Rayner herself admitted that 1.5 million would leave only “a dent” in the country’s needs. If she can do more, it will count as a huge achievement.

But it won’t happen overnight. In the meantime, I’m afraid, buyers and renters alike are going to find 2025 a tough year.