Knight Frank Predicts 7% Drop in House Prices

According to Knight Frank’s latest forecast, the UK housing market is expected to undergo some turbulence before witnessing an eventual recovery.

While earlier forecasts predicted a 5% fall in UK house prices for 2023, recent updates have adjusted this prediction to a 7% drop. Further, a 4% decline is anticipated for 2024. But there’s light at the end of the tunnel; growth is predicted from 2025 onwards, with rates increasing each year until 2027.

Detailed 5-year House Price Forecast:

2023: UK (-7%), Prime Central London (PCL) (-3%), Prime Outer London (POL) (-3%), Prime Country (-7%)
2024: UK (-4%), PCL (0%), POL (+1%), Prime Country (-3%)
2025 to 2027: Positive growth is expected, peaking at 5% in 2027 for the UK.

Over the five years, this translates to a cumulative growth of 1.4% for the UK, with PCL, POL, and Prime Country seeing 8.1%, 6.5%, and 0.5% respectively.

London vs. the Countryside

Knight Frank believes that Prime Central London (PCL) will weather the storm better than other regions due to factors such as the volume of cash sales and prices still being considerably below their 2015 peak. The anticipated return of international travel will also play a part.

Prime Outer London (POL) is set to benefit from more domestic and essential-driven demand. The forecast indicates a slightly smaller fall for POL in 2023 than initially expected.

On the other hand, Country markets, having experienced a 20% price surge at their peak, are expected to see a more significant fall than London. Despite a 7% decline predicted for 2023, prices will still be 6.7% higher than they were at the start of 2020 and 3.4% above pre-pandemic levels by the end of 2024.

A Booming Rental Market

Despite the fluctuations in house prices, the rental market paints a brighter picture.

Strong Growth Predicted in Prime Markets

While the past years have seen some landlords exit the market due to increasing taxes and more stringent regulations, the balance is now starting to correct. Some homeowners, uncertain about the future price trajectories, have opted to rent out their properties, contributing to a predicted growth of 23.9% in PCL and 23.3% in POL rental values by 2027.

5-year Rental Growth Forecast:

2023: PCL (8%), POL (8%), UK (6.5%), Greater London (7%)
2024: PCL (5%), POL (4.5%), UK (5%), Greater London (5.5%)
2025 to 2027: Steady growth is foreseen, with a 2.5% increase expected for the UK in 2027.

Over the upcoming five years, cumulative growth for PCL, POL, UK, and Greater London will stand at 23.9%, 23.3%, 22.2%, and 23.3% respectively.

The Driving Forces Behind Rental Demand

Multiple factors drive the current demand in the rental market. A robust labour market, paired with job creation, plays a significant role. Moreover, higher mortgage rates are pushing potential buyers to stay in the rental sector. With these factors in play, Knight Frank has revised its growth forecasts for 2023 to 6.5%, with a 5% growth predicted for 2024.

Wrapping It Up

The UK property market, like any investment, will have its peaks and troughs. While short-term fluctuations may seem alarming, a closer look at the forecasts reveals potential for growth in the medium to long term. Whether you’re considering investing, buying, or renting, staying informed is key to making sound decisions in the ever-evolving property landscape.