Market News

UK house prices saw their sharpest annual rise in nearly two years in December 2024, but experts warn that a surprise spike in inflation could soon erase sub-4% mortgage rates from the market.

According to the Office for National Statistics (ONS), the average UK house price reached £268,000 in December 2024, up by 4.6% from a year earlier. This marked a steep acceleration from the 3.9% annual increase recorded in November.

In a separate release, the ONS revealed that the Consumer Prices Index (CPI) inflation rose to 3% in January, a jump from 2.5% in December. The increase exceeded analysts' expectations of a 2.8% rise.

The figures highlight sharp differences in house price growth across the UK. In England, the average house price hit £291,000 in December 2024, an increase of 4.3% (£12,000) from the previous year. This growth surpassed the 3.4% increase in November. Meanwhile, house prices in Wales grew by 3.0% to an average of £208,000, slightly down from November's 3.7%.

In Scotland, the annual rise was more pronounced, with the average house price surging by 6.9% to £189,000, compared to a 5.9% increase the month before. Northern Ireland saw even more significant gains, with prices rising by 9.0% to £183,000 in the final quarter of 2024.

The North East of England experienced the highest regional house price inflation, with a 6.7% increase in the 12 months to December, up from 6.4% in November.

However, this price momentum comes at a time of rising inflation, which has created fresh uncertainty in the housing market. Following a recent cut in the Bank of England's base rate, some lenders reintroduced fixed-rate mortgage deals below 4% in February. Yet, experts caution that these rates may not last long.

Read more: UK inflation jumps more than expected to 3% in January

Matt Smith, a mortgage expert at Rightmove, said: “This morning’s unexpectedly high inflation figure is likely to have a knock-on effect to some of the early momentum we were starting to see in mortgage rates coming down, as the financial markets react today.

“We’d hoped for a sustained period of gradual falls, but with inflation increasing by 0.2 [percentage points] more than the market expected, we can expect to see a change in that direction.

“Any news which deviates from market forecasts, is likely to cause rates to rise or fall. Over the coming days, the sub-4% rates that had only just started to come out may be the first to go as mortgage lenders re-look at what they can offer home movers.”

Jason Tebb, president of OnTheMarket, said: “Two interest rate cuts in the latter half of last year and one this month have had a positive knock-on effect on confidence, which the market relies so heavily on.

“With inflation rising unexpectedly to 3%, the next rate reduction may be pushed back a little as the Bank of England keeps a close eye on inflationary pressures in coming months.”

Read more: UK inflation rise is a blow to Bank of England interest rate cut path

The ONS also reported on the latest trends in private-sector rents, which continued to climb in January 2025, though at a slightly slower pace than in December. Rents were 8.7% higher than a year earlier, with a modest slowdown from December’s 9.0% increase.

Average rents across England rose 8.8% to £1,375. Wales saw an 8.4% rise to £780 and average rents in Scotland were up 6.2% to £995. Northern Ireland saw an 8.3% increase in rents during the 12 months to November 2024.

Within England, London recorded the highest rent inflation, with a 11% rise in the year to January 2025, while Yorkshire and The Humber (5.3%) recorded the lowest increase. London also had the highest average rent, at £2,227, while the North East saw the lowest average rent, at £710.

The highest rents outside London were found in Elmbridge, South East England, where the average rent reached £1,876.

When broken down by property type, detached homes commanded the highest average rent (£1,530), while flats and maisonettes were the least expensive (£1,302). For properties with four or more bedrooms, average rents stood at £2,020, compared to £1,072 for one-bedroom homes.