The UK housing market has been through a whirlwind of changes and challenges over the past few years. However, according to Savills, a leading estate agency, there is a glimmer of hope on the horizon for homebuyers and investors.
A Glimpse into the Future: Savills’ Five-Year Outlook
Savills has shared its five-year outlook for the UK housing market, and the forecast brings a mix of expectations. The agency projects a 4% drop in house prices this year, followed by a 3% fall in 2024. However, there’s a silver lining; they anticipate prices will stabilize by the next summer, marking the end of a decline phase that has seen a total estimated drop of 7% since last autumn.
Interest Rates and Their Impact on the Property Market
One of the key drivers behind this predicted stabilization is the Bank of England’s interest rate policy. Currently, the base rate stands at 5.25%, but Savills expects a decrease to 4.75% in the second half of 2024, with a further reduction to 1.75% by 2027. While high interest rates have been a tool to combat inflation, their peak is seen as a turning point for the housing market, as lower rates could improve affordability and stimulate demand.
Recovery and Growth on the Horizon
Savills’ crystal ball sees house price growth resuming in 2025 with an increase of 3.5%, accelerating to 5% in 2026, peaking at 6.5% in 2027, and then moderating again to 5% in 2028. This growth trajectory is underpinned by the expectation of easing affordability pressures and a restoration of buying power, suggesting a steady recovery in housing demand.
The Current State of the UK Housing Market
Despite the tumultuous journey, the housing market showed some unexpected resilience last month. Halifax reported a rise in house prices for the first time since March, with the average property price climbing to £281,974 — an increase of 1.1% from September. Yet, compared with last year, there’s been a 3.2% drop, indicating that while the market may be stabilizing, it’s still recovering from recent shocks.
Who’s Buying in Today’s Market?
Cash buyers have emerged as the most resilient group amidst the mortgage cost surge, with their activity being 3.5% higher than the 2017-19 average. However, the number of transactions involving mortgaged buyers, particularly buy-to-let investors, has dwindled. As a result, total property transactions are expected to close the year 20% lower than in 2022.
Regional Variations in the Housing Market
The UK housing market’s recovery isn’t uniform across the board. London and the South East may see greater price falls next year due to higher deposit requirements and borrowing levels. In contrast, Wales and the North East are projected to experience the most significant overall price growth over the next five years.
By 2028, London is expected to reclaim its position as the leader in prime and mainstream house price growth, spurred by population growth and a stronger economic forecast. Interestingly, prime property in central London might dodge the downward trend in 2024, with luxury properties potentially gaining £800,000 over five years.
The Role of Supply and Demand
Kim Kinnaird of Halifax Mortgages highlights a cautious attitude among prospective sellers, leading to a limited supply of homes for sale. This constrained supply, rather than robust buyer demand, is likely propping up prices for the time being. Despite wage increases, higher interest rates and broader affordability issues remain significant hurdles for many buyers.
Wrapping Up
For those eyeing the UK property market, the latest insights from Savills offer both caution and optimism. While the market is not without its challenges, particularly with interest rates and affordability pressures, the predictions suggest that the “peak pain” may have passed. As we look towards the future, a gradual recovery and a return to growth are on the cards, with regional disparities providing opportunities for strategic investments