As 2025 developed we saw quite a change in the picture of UK house price growth and we saw it on both a tactical and strategic level. It meant that economic theory was in fact correct but the truth was not properly told. Let me start with the tactical via the Halifax house price index from this morning.
“Average house prices fell by -0.6% in December, down £1,789 compared to November, with a typical property now costing £297,755, the lowest since June 2025. On an annual basis, growth slowed to +0.3%, down from +0.6% in November.”
The unfortunate research student presenting the Bank of England morning meeting will have quite a headache. He or she not only has a monthly decline to report on but also the lowest price since June. Then annual growth has slowed to at best a crawl and in reality is probably flat. Governor Andrew Bailey will frown.
The Halifax has a go at being upbeat.
“While this may feel like a subdued close to the housing market in 2025, overall activity levels were resilient over the last year and broadly in line with the pre-pandemic average. “Various forces are poised to somewhat buoy the market heading into 2026. While December’s monthly fall in prices was likely related to uncertainty in the latter part of the year, this should now be starting to unwind.”
There is a nod to the impact of the November Budget and also the emergency breakfast briefing from Chancellor Rachel Reeves. One area where our research student can rally is this.
Further, mortgage rates are already reducing following the latest Base Rate cut and there are an increasing number of lending options available for those borrowing at a higher loanto-value.
The room will echo to a chorus of “well played Sir” as the 4 policymakers who voted not to cut Bank Rate stare at their shoes and hope for the day when the cake trolley again passes their desk. The latter point is a nod to the way that government policy has changed or rather has returned to what over time is the normal setting. More on that later.
We even get an affordability klaxon.
“While affordability pressures persist, the house price to income ratio was at its lowest in over a decade in December, striking a positive note for those looking to purchase their first home.”
There are always switches around the number used for example we will not be seeing comparisons to the mortgage rate. Also using income singular is rather a swerve because these days 2 incomes are usually required. But in spite of things apparently being so good even the Halifax cannot strum up too much enthusiasm for what’s ahead.
“On this basis, and recognising the headwinds that may affect buying power – such as the slowing of wage inflation and flattening employment rates – we expect a modest rise in house prices during the year of between 1% and 3%.”
Ah yes affordability is only better if you have a job! Notice how falling employment rates are described as “flattening”.
The Halifax release is similar to the one from the Nationwide I looked at on Monday where there was a 0.4% monthly fall with annual price growth falling to 0.6%.
Economic theory
Looking at the two reports suggests that there has been rather a lag before higher mortgage rates had an impact.
The ‘effective’ interest rate – the actual interest paid – on newly drawn mortgages increased for the first time since February 2025 (4.53%), to 4.20% in November from 4.17% in October. The rate on the outstanding stock of mortgages was 3.90% in November, up from 3.89% in the previous months. ( Bank of England)
Perhaps they took their time although there are always other things happening. As for example the weakening of the UK labour market as 2025 progressed is no doubt having an impact.
Up is the new down
We have yet another problem with official statistics and as so often the word “improvement” sends a chill down my spine. This is an area I have looked at for Better Statistics and there has been quite a problem with the official measure of new house prices.
On 20 August 2025, we introduced an improvement to the House Price Index’s (HPI’s) imputation method for Great Britain, which reduces initial overestimation of new build provisional estimates.
I have highlighted another word which is always singing along with Lyndsey Buckingham.
I should run on the doubleI think I’m in trouble,I think I’m in trouble.
The sense of unease heightens as you read an official blog post that omits the actual numbers.
A larger-than-normal downwards revision to new build estimates for recent months in today’s release (20 August 2025), as the improved methods are implemented.
Considering new builds are a relatively small component of the overall measure (about 9%) then the amount of trouble had to be large when we do track down the impact.
On average, the UK HPI annual inflation rate between June 2024 and May 2025 has been revised down by 0.5 percentage points. This large downward revision was expected this month because of implementing the improved method.
When I looked up the change I saw that previous reports suggesting new build inflation had reached around 30% have been replaced by ones more like 13%. I am sorry to say that such a change again questions the competence of the Office for National Statistics as how on earth did they manage to get to 30%? For many years I have argued for actual prices rather than imputations and have again been proven to be correct. As to the new aeries I hope that it is a success but looking at it there is no reason to suppose that 13% is better than 12% or 14% that I can see.
The Problem
Let me show this via the August 2025 release.
Average UK house prices increased by 3.7%, to £269,000, in the 12 months to June 2025 (provisional estimate); this annual growth rate is up from 2.7%, in the 12 months to May 2025.
And now August 2024.
Average UK house prices increased by 2.7%, to £288,000, in the 12 months to June 2024 (provisional estimate); this annual growth is unchanged from the revised estimate for the 12 months to May 2024.
So over the year to June 2025 annual house price growth accelerated to 3.7% as the index fell by £19,000 or 6.6%.
So if you look at the reported annual rate economics 101 is struggling if you compare with the change in the index level you give economics 101 a thumbs up.
Comment
As you can see it looks as though the official series did see house price falls as one might expect from the higher mortgage rates which the Nationwide described like this on Monday..
mortgage rates around three times their post pandemic lows,
So economic theory did work,it is just that we did not realise it at the time.Even worse we were actively misled by the official house price numbers. Looking forwards I hope that the new management at the Office for National Statistics get a grip on things as they are in quite a mess.
Also we now see why government policy has shifted. The push for weaker mortgage standards for example. Plus the enthusiasm of Bank of England Governor Andrew Bailey for interest-rate cuts. This should be an example of government policy operating against itself with its main economic declaration being it will build 1.5 million houses in this UK parliament, which should depress house prices. Or it would of there was any sign of it taking place. The awful numbers from the S&P Global PMI construction survey yesterday included this.
Meanwhile, both housing activity (33.5) and commercial construction (42.0) decreased to the greatest extent since May 2020.
For those unaware of the survey the housing activity reading is similar to the depths seen in the Greek depression,
