We’ve all read stories about house prices that feel detached from the reality of our own postcode. In recent weeks, some upbeat reports have also appeared disconnected from the reality of the UK economy. It must be frustrating, particularly for anyone buying or selling, but what is going on?

In simple terms: the length of the home-buying process and imminent stamp duty changes are clouding the picture.

On January 2 we learnt that UK manufacturing output fell at the fastest pace in 11 months in December. The same day, Nationwide Building Society said UK annual house price growth had risen to 4.7 per cent, the highest rate since November 2022.

The factory data was the latest in a series of weak economic readings since the budget, which included some shaky retail numbers over Christmas. The recent spike in the cost of government borrowing shows financial markets are concerned about Labour’s plans to borrow and spend more.

The tougher interest rate landscape has been exacerbated by an expectation that the US Federal Reserve will be slower to cut rates during a Donald Trump presidency. The five-year interest rate swap rate, which affects the price of fixed-rate mortgages of the same length, was trading close to 4.5 per cent last week, compared with 3.8 per cent in early October. With fixed-rate mortgage rates now above 4 per cent, a psychological line has been crossed that will keep some discretionary buyers on the sidelines.

The reason house prices appear buoyant by comparison is that buyers are still sitting on sub-4 per cent mortgage offers that were made before the budget. Agreements are generally valid for up to six months, which has insulated borrowers from the rising cost of debt.

However, with a price slowdown in the post, the first cracks from the budget are now showing. Although mortgage approvals in November were a third higher than the same month in 2023, they were 4 per cent lower than in October. Outside of global financial crises and mini-budgets, approval numbers tend to climb as Christmas approaches. The trajectory for transaction numbers was similar in the same month. And Halifax reported annual price growth of 3.3 per cent in December, which is strong when you consider GDP is flatlining and consumer confidence has tumbled, but still down from 4.7 per cent in November. We expect prices and transaction volumes will increasingly be squeezed as rising borrowing costs bite harder.

The other factor muddying the waters and temporarily supporting demand is an imminent change to stamp duty rates. The zero-rate band reverts to £125,000 from £250,000 in April, which means bills will rise by up to £2,500 depending on the value of the property. A similar reversion means up to £6,250 in additional stamp duty for first-time buyers, which has understandably focused minds.

• Why you shouldn’t rush to beat the stamp duty deadline

We know from the stamp duty holiday during the pandemic that the prospect of even a relatively small saving can temporarily boost trading volumes, which would underpin demand in the first three months of the year. April might not be the cruellest month for the UK housing market in 2025, but a lull in the second quarter of the year would not be surprising, particularly as those sub-4 per cent mortgage offers lapse.

Apart from a closer alignment between house prices and the wider economic data, how will the rest of 2025 pan out for the property market?

There has been speculation around a recession, stagflation and even “stagflation-lite”, but it ultimately comes down to a single question. Last year we asked ourselves “what will be the outcome of the election?” and “what will be in the budget?” In 2025 the key question for buyers and sellers should be “will the budget work?”

Tom Bill is the head of UK residential research at the estate agency Knight Frank Life & StyleProperty & Home