Where is housing market headed in 2025? Guest blog by John Boyle, director of research at Rettie

As we move into 2025, many housing market commentators make forecasts (or, more accurately, intelligent guesses) of what lies ahead.

Housing is pro-cyclical, so will tend to match changes in the wider economy.

Bank of England forecasts suggest that the economy will remain subdued this year as a period of relatively high interest rates has weighed down on growth. However, the anticipated modest cuts in interest rates this year have started to happen, with the current market consensus suggesting a drop of 0.75 percentage points over the course of the year to bring the base rate down to 4% for the first time since early 2023.

This has already been at least partly reflected in reduced mortgage rates, but these will remain above historic levels for a time, which will mean that the market will still face a headwind as many households will have to remortgage at higher rates. This is likely to exert continued downward pressure on the overall average price across Scotland.

On the positive side, the UK Government is talking about loosening mortgage regulation, which may make it easier for more people, particularly younger people, to get on the housing ladder. However, this will require action by the regulator, the Financial Conduct Authority, which will have to keep a careful eye on limiting risky lending given the impact that lax lending policies had on the housing market when it crashed in 2008/09.

In our current central forecast, we expect the average house price in Scotland to rise this year by around 3%. In subsequent years, we think that growth will move back closer to the long-term trend (of around 4%) – if the economy recovers as anticipated. Sales activity is stabilising and starting to recover, albeit slowly. 

Transactions were around 93,000 in 2023 and climbed to just over 98,000 in 2024. We think there may be some very modest improvement in 2025 and perhaps we will again hit the 10-year average of c.100,000 sales per year. However, this will vary across geographies and property types. To give some context, Scotland achieved 154,000 sales in 2007 at the market peak, a level that we are unlikely to return to anytime soon.

In the rental market, we think that some of the pressures on the private rented sector (PRS) will continue to ease as demand dampens a little. This is already being seen in the main cities, although sharper reductions in supply may increase pressures again, especially if the problems presented by the new Housing Bill are not addressed. 

Much of this Bill, e.g. on keeping pets and being able to more easily end joint tenancies, is welcomed by the housing sector, but provisions for rent control (especially between tenancies) is causing consternation, despite a link to inflation now being included, which the sector lobbied for. 

When the legislation is settled, landlords will be doing their sums and it seems likely that there will be some exodus from those who believe that they can no longer make an acceptable return. Caps on rents may also create caps on supply.