The UK housing market should enjoy a smoother ride in the second half of the year compared to the first – on paper, at least, Knight Frank’s latest analysis of the UK residential housing market has found.
The first fortnight of April is unlikely to be beaten when it comes to the most disorientating period of 2025.
“As the housing market fell quiet after the March stamp duty cliff edge, global financial markets were in disarray as Donald Trump announced a range of trade tariffs on 2 April,” said Tom Bill, head of UK residential research at Knight Frank.
He points out that uncertainty levels rose again this month due to the conflict in the Middle East, which saw the oil price spike and concerns grow around higher inflation and interest rates.
For now, though, the housing market is stirring back into life, tariff tensions are de-escalating and there is a fragile ceasefire between Israel and Iran.
All these subjects and more are discussed in a podcast to be released on Monday with Michael Brown, senior research strategist at financial broker Pepperstone.
Trump eventually calmed markets by introducing a 90-day pause on the implementation of tariffs. That expires next week, but Brown believes markets will remain calm.
“The UK is in the comfortable position of having agreed a trade deal, but on a global level the US has shown that they’ve got no desire or ability to stomach the economic impacts of significant tariffs,” he said on the podcast.
Meanwhile, the recovery in housing transactions since April was underlined by fresh data on Friday.
Bill explained: “The nil-rate band for stamp duty was lowered in April to £125,000 from £250,000, which meant completing in March enabled a maximum saving of £2,500 or £11,250 for first-time buyers. As a result, the number of UK transactions was 57% above the five-year average (excluding 2020) in March, which was followed by a 37% slump in April.
“The equivalent decline was 17% in May, which indicates the market is stirring back into life.
“However, the recovery in activity could be hindered by high levels of supply. The number of new UK sales listings in the first five months of the year was 15% higher than the five-year average [excluding 2020], Knight Frank data shows.”
Bill highlights that asking prices will need to reflect the wide choice on offer for buyers to stimulate activity.
He continued: “As well as a supply overhang from the stamp duty deadline, owners have activated plans that were delayed in 2024 due to the general election and Budget and there is a growing number of landlords selling due to increased red tape in the lettings sector.”
So, what are the risks as we enter the second half of the year?
“The recent bout of weak UK economic data has increased the chances of a rate cut by the Bank of England in August. Brown believes there could be three or even four cuts by Christmas, depending on how quickly inflation comes under control.
“Five-year swap rates, which are used to price fixed-rate mortgages of the same length, were trading just above 3.6% last week, which is broadly the same level as before last October’s Budget. They peaked at around 4.3% in mid-January.
“That’s the good news and the reason we expect modest house price growth by the end of the year.
“The bad news is the government’s financial headroom remains largely non-existent four months before the autumn Budget, and tax rises are the likely solution.”
Although VAT, income tax and national insurance (NI) combined account for 57p in every £1 of government tax revenue, raising them would break a manifesto pledge. Some would argue that raising employer NI already has, of course.
Bill added: “The government’s fiscal predicament means that even as geopolitical risks and stamp duty disruptions fade, we certainly won’t be on cruise control between now and Christmas.
“Last week’s row over welfare reforms was a reminder that although the government is the dominant party in Parliament, many MPs are sitting on thin majorities in their own constituencies. We said after the election that Labour had won a ‘shallow majority’, and the next six months could show us what that means in practice.”
