Will 2025 herald a hike in mortgage rates or deliver a respite for prospective and current homeowners?
In the real estate market of 2025, a significant trend is emerging: an increase in renovation mortgages. This shift is driven by a combination of factors, including high mortgage rates and inflated starter home prices, which are pushing U.S. homeowners to tap into their home equity to fund upgrades rather than buy new homes.
Millennials and Gen Z, in particular, are favouring remodelling over relocating, with around 60% and 56% respectively planning renovations this year. The financial attractiveness of renovation costs compared to new home purchase or self-build expenses is a major draw.
On the other hand, self-build mortgages, linked to building new properties, face a more complex outlook. While overall single-family home construction starts see muted or slightly declining projections in 2025, advances in construction technologies such as 3D printing and factory-built components could improve efficiency and reduce costs over time. However, the rise in multifamily housing and remodelling activity suggests that growth in the traditional self-build market could be slower or more selective.
Key trends shaping the market include a rising reliance on home equity lines of credit (HELOCs) and renovation mortgages as refinancing or new purchase mortgages remain expensive. Increasing homeowner preference to "stay and improve" homes due to unfavourable selling conditions and high interest rates is also boosting renovation demand.
Emergence of energy-efficient and smart home upgrades as popular renovation projects is another notable trend. These upgrades offer immediate cost savings and value-add to properties.
Moderation of interest rates is expected to gradually improve mortgage affordability, which may support some growth in new construction financing but likely after renovation trends mature.
Aaron Forster, Director at Find The Right Mortgage, predicts a busy year for remortgages in 2025. With over 18 years in the industry, Aaron specializes in whole-of-market mortgage and protection advice. He previously held leadership roles at Create Finance, TSB Bank, and Lloyds Banking Group.
Paresh Raja, CEO of Market Financial Solutions, emphasizes that interest and mortgage rates remain significantly higher than pre-December 2021 levels. Founded in 2006, Market Financial Solutions specializes in providing bridging loans and buy-to-let mortgages.
In addition, 19 experts agree that house prices will increase in 2025, and 17 experts believe the government will introduce a replacement for the Help to Buy scheme in 2025. The Bank of England will hold its next interest rate meeting on 6 February 2025.
With these trends in mind, 2025 could be an opportune year for property investment or homeownership, as mortgage rate declines and rising house prices create a favourable environment for both renovation projects and new construction.
- Recognizing the shift in the real estate market of 2025, a surge in renovation mortgages is evident, driven by factors such as high mortgage rates, inflated starter home prices, and the preference for remodeling among Millennials and Gen Z.
- Renovation costs are proving to be more financially attractive compared to the expenses associated with buying new homes or self-building, attracting around 60% and 56% of these two generations to remodel their homes this year.
- While the outlook for self-build mortgages shows complexity, with declining projections for single-family home construction starts in 2025, advancements in construction technologies like 3D printing and factory-built components might improve efficiency and reduce costs over time.
- As refinancing or new purchase mortgages remain expensive, the housing market in 2025 is witnessing a growing reliance on home equity lines of credit (HELOCs) and renovation mortgages.
- The popularity of energy-efficient and smart home upgrades as renovation projects is on the rise, offering immediate cost savings and increased property value to homeowners.
