Property giant Savills now projects an increase in UK house prices this year, marking a significant reversal from their earlier prediction. Initially, Savills expected a 3% drop in the average price of a home due to increased mortgage rates instigated by hikes in the Bank of England base rate. These rate hikes had previously intensified the financial burden on potential homeowners, making affordability a significant challenge.
The pivotal factor influencing this change is the decrease in mortgage rates, which has sparked more activity in the property market. Despite the Bank of England base rate holding steady at 5.25%, intensified competition among mortgage lenders has led to more affordable borrowing costs. Consequently, Savills has adjusted its forecast, now expecting an average house price increase of 2.5% in 2024, reaching £292,000.
Long-Term Growth Outlook
Looking beyond this year, Savills has somewhat lowered its longer-term growth expectations but still predicts positive trends. By the end of 2028, they anticipate that average house prices will rise by £61,500 or 21.6%, culminating at £346,500. This projection is buoyed by an upward revision in the number of homes expected to be sold this year, from 1.01 million to 1.05 million.
Market Dynamics and Economic Factors
Lucian Cook, head of residential research at Savills, notes that the overall economic outlook has slightly improved, contributing to this positive adjustment in housing market forecasts. Although mortgage costs have only slightly decreased, the reduction in volatility and the less uncertain economic landscape encourage a modest growth in house prices this year, with more substantial increases anticipated in the following years.
Interest Rates and Mortgage Trends
There’s a common belief among experts that the Bank of England’s base rate has peaked. While some economists anticipated a rate cut as early as March, policymakers opted to wait, wanting to ensure inflation continues its downward trend. Meanwhile, Cook highlighted that mortgage rates have decreased, with notable reductions in fixed-rate offers from major lenders like Nationwide, although these rates have begun to creep up again in recent weeks.
Regional Variations and Comparisons
Savills predicts varied growth rates across different regions. In London, where house prices are the highest, a 14.2% increase is expected over the next five years. In contrast, more significant growth is projected in the north-west of England and Yorkshire and the Humber, where house prices are generally lower. These areas might see growth rates nearly double that of London.