February saw an unexpected surge in UK house prices as buyers scrambled to finalise deals before the April Stamp Duty changes take effect.

Price Growth Surpasses Expectations

New data reveals that average house prices jumped by 0.4% from January to February, reaching £270,493. That’s a 3.9% annual increase, just shy of January’s 4.1% growth. Economists had predicted a more modest rise of 0.2% month-on-month and 3.4% annually.

Despite the boost, transactions remain 6% below pre-pandemic levels, and prices are still 1.2% off their summer 2023 peak, when rising mortgage rates and tighter household budgets dampened the market.

First-Time Buyers and Cash Purchases Fuel the Market

A significant factor behind February’s rise was the rush of first-time buyers eager to lock in deals before Stamp Duty thresholds change in April. This has created a burst of activity in early 2025, despite ongoing affordability concerns. After the tax changes come into play, experts predict a cooling off.

However, there are still positive signs for the market. Strong wage growth and low unemployment continue to support demand, with earnings rising at their fastest rate since 2021 in late 2024.

Meanwhile, borrowing costs have eased since mid-2023, and mortgage completions in 2024 were only 5% lower than 2019, showing that the market is far from collapsing. In fact, transaction volumes rose by 14% in late 2024 compared to the same period the previous year.

Cash buyers have also been pivotal in keeping momentum going, with purchases now 2% higher than pre-pandemic levels. Many landlords, anticipating upcoming regulatory changes, have been snapping up properties as part of their investment strategies.

Economic Pressures and Market Sentiment

While market sentiment remains cautiously optimistic, inflation continues to be a problem. At 3%, inflation is still above the Bank of England’s 2% target, making any sharp cuts to mortgage rates unlikely in the near future.

The Bank of England has lowered interest rates three times since mid-2024, bringing the base rate down to 4.5%. Financial markets expect a couple of small rate cuts by the end of 2025, but this outlook has become more conservative compared to previous predictions. Over the past three months, mortgage rates have crept up, and February saw a dip in first-time buyer inquiries.

What’s Next for the Housing Market in 2025?

Looking ahead, market pressures are expected to build as housing supply begins to surpass demand. At the same time, buyers are dealing with economic uncertainty as the government reveals new fiscal measures.

The Stamp Duty changes set for April are likely to shake things up further. First-time buyers, whose tax-free threshold will drop from £425,000 to £300,000, are rushing to complete purchases before the new rules kick in.

Experts are forecasting a 4% rise in house prices over the course of 2025, though the average home is already 25% more expensive than it was in early 2020, before the pandemic began.

Conclusion

The boost in UK house prices this February is largely down to a flurry of last-minute activity from buyers racing to finalise deals ahead of the April Stamp Duty changes. While strong wage growth and lower borrowing costs have kept demand stable, concerns over inflation and high mortgage rates could slow things down in the months to come.

With supply set to outpace demand, a slowdown after April is expected. While modest price growth is anticipated in 2025, potential buyers will need to navigate a rapidly changing economic environment shaped by government policies and interest rate shifts.