British house prices saw a stronger-than-expected increase in January as buyers rushed to finalize transactions before a scheduled rise in property purchase taxes in April, mortgage lender

Halifax reported on Friday.

According to Halifax, house prices rose by 0.7% in January compared to December, when they had fallen by 0.2%. This increase outpaced economists’ predictions of a 0.2% rise in a Reuters poll. Additionally, the three-month period leading up to January saw the sharpest price growth in nearly a year.

Buyers race against stamp duty changes

Amanda Bryden, head of mortgages at Halifax, noted that strong mortgage demand and lending growth contributed to the increase. The looming stamp duty hike likely prompted first-time buyers to complete transactions before the end of March.

"The upcoming tax changes are pushing some buyers to accelerate their purchases, particularly first-time buyers looking to benefit from the current incentives," Bryden said.

With temporary tax breaks for buyers of lower-cost homes set to expire at the end of next month, housing demand is expected to remain strong in the short term.

Matt Swannell, chief economic advisor at the EY ITEM Club, echoed this sentiment, stating, “Early signs suggest the housing market will perform well for another month or two before the stamp duty adjustments take effect.”

Mortgage approvals and interest rates

Recent data from the Bank of England supports this trend, showing that mortgage approvals in December reached their highest level since September 2022.

Meanwhile, the BoE reduced interest rates on Thursday for the third time since August. However, despite lowering its economic growth forecasts for the year, the central bank signaled a cautious approach to further rate cuts due to the possibility of rising inflation in the coming months.

Market outlook and future challenges

Halifax’s data contrasts with that of its competitor, Nationwide, which reported a much smaller monthly price increase of 0.1% in January, suggesting a slowdown in the market.

While Halifax acknowledged the resilience of the market, affordability challenges remain a concern. Bryden emphasized that a lack of housing supply continues to be a key issue. Prime Minister Keir Starmer’s Labour government has prioritized accelerating home construction to address Britain's ongoing housing shortage.

Looking ahead, Halifax has projected that house prices could rise by up to 3% in 2025. However, its measure of annual price growth slowed to 3.0% in January, down from 3.4% in December, marking the slowest pace since July last year.

As the tax deadline approaches, all eyes remain on whether this momentum will continue or taper off once the policy changes take effect.