UK Property Market Update – Q1 2025

The Spring Budget 2025 unveiled a series of decisive reforms aimed at bolstering housebuilding and stimulating economic growth. The government’s commitment to tackling the housing crisis was evident in several key announcements, with the Office for Budget Responsibility (OBR) already acknowledging the potential positive impact of initial measures.

Planning System Overhaul

A central pillar of the Budget was a significant overhaul of the planning system. Building upon the wide-ranging reforms to the National Planning Policy Framework (NPPF) implemented in December 2024, the government is pushing ahead with further measures. The December NPPF changes, which reintroduced mandatory housing targets and modernised Green Belt policy to include lower-quality “grey belt” land for development, are projected by the OBR to increase annual housebuilding by approximately 30% by 2029-30. This could lead to an additional 170,000 homes over the forecast period, reaching a 40-year high in net additions. Notably, the OBR considers these planning reforms to have the most substantial positive growth effect of any policy in their forecast without direct fiscal cost. While the OBR’s current assessment focuses solely on the NPPF changes, further reforms are anticipated through the Planning and Infrastructure Bill and other forthcoming measures.

Increased Capital Spending and Housing Strategy

The government also announced a further £13 billion increase in capital spending over the Parliament, specifically targeting growth-enhancing investments in areas like infrastructure, housing, and defence innovation. This is in addition to the substantial £100 billion increase announced in the Autumn Budget. Furthermore, details of new investment in social and affordable housing are expected, alongside the publication of a Long-Term Housing Strategy later in the year. The confirmation of locations for major new towns is also anticipated, all contributing to the overarching goal of delivering the much-needed homes across the country.

In a move welcomed by the property sector, the Bank of England has reduced its base interest rate by 0.25%, bringing it down to 4.5%. This decision, intended to stimulate economic activity and ease borrowing conditions, is a positive signal for both prospective homeowners and property investors.

Impact on Borrowers and Investors

The rate cut is expected to inject renewed confidence into the market, potentially leading to:

• Lower Mortgage Costs: Homebuyers and investors with variable or tracker-rate mortgages will likely see an immediate reduction in their monthly repayments.
• Increased Purchasing Power: Lower borrowing costs can improve affordability, potentially opening the door for more individuals to enter the property market and for investors to expand their portfolios.
• Attractive Fixed-Rate Opportunities: While fixed-rate mortgages may not immediately reflect the base rate cut, the expectation of further stability or potential future cuts could lead to more competitive fixed-rate deals becoming available.

Navigating Market Dynamics

The Bank of England’s decision to lower the base rate follows a period of rising inflation in 2024, which led to interest rate hikes that subsequently cooled the property market. With inflation now showing signs of stabilising, this rate reduction aims to create a more favourable borrowing environment for individuals and businesses alike. For property investors, this can translate to improved profitability on leveraged investments and increased viability for new acquisitions.

The government has reaffirmed its commitment to a significant overhaul of property ownership by announcing its intention to abolish leasehold for flats in England and Wales. This follows the Leasehold and Freehold Act, which received Royal Assent in May 2024 and immediately abolished leasehold for new houses.

Shifting to Commonhold

The upcoming Leasehold and Commonhold Reform Bill, expected later in 2025, will propose a ban on the sale of new flats under leasehold agreements. Instead, commonhold ownership will become the standard. This will allow flat owners to own their properties outright, eliminating the complexities and often high costs associated with a separate freeholder.

Scale of the Reform

This reform will impact a substantial portion of the housing market. Over 70% of leasehold homes in England are flats, representing approximately 4.8 million properties or 19% of the total English housing stock. In Wales, around 16% of properties are leaseholds, accounting for roughly 12% of property transactions. The transition to commonhold is a significant step towards simplifying property ownership and empowering flat owners.

The government’s ambitious plan to develop a new generation of towns is progressing, with the Ministry for Housing, Planning and Local Government (MCLHG) providing an update six months after the launch of the dedicated New Towns Task Force.

Identifying Potential Sites

Over 100 potential sites across England have been suggested by councils, housing developers, and landowners following the government’s call for expressions of interest. The New Towns Task Force is now tasked with identifying specific locations and funding options by the summer of 2025, with the aim of commencing construction on the first sites before the next general election.

Urban Extensions and Standalone Settlements

The majority of the proposed sites are expected to be urban extensions or redevelopments of existing areas, with a smaller number of entirely new, standalone settlements also under consideration. Housing Minister Matthew Pennycook MP has emphasised that these new towns will contribute to the government’s target of building 1.5 million homes. Achieving this goal, however, also relies on the successful implementation of other measures, such as the planning policy framework overhaul. Recent measures announced by Chancellor Rachel Reeves in January 2025 are also designed to facilitate development by removing planning barriers and encouraging investment in infrastructure projects.