Savills, in its latest five-year forecast, suggests that the UK housing market is moving past its most challenging phase, with expectations for house prices to level out by mid-2024. After a tumultuous year, house prices are predicted to fall by a modest 3% in 2024, a sign of recovery as the affordability pressures begin to ease. This follows a year where the market fared slightly better than anticipated, with mortgage markets finding a steadier ground.
The prime regional markets, less affected by debt, are set to lead the recovery with a mere 1.5% dip in 2024. Conversely, the average UK house price is expected to see an annual drop of 4.0% by the end of 2023, totaling a 7.0% decrease from autumn 2022.
Prime Central London (PCL) is poised to experience minimal price declines next year, buoyed by its lower reliance on mortgage debt and the attraction it holds for affluent domestic and international buyers. Despite being 19% lower than the 2014 peak, PCL properties could see substantial gains over the forecast period.
Cash buyers have maintained market activity above the 2017-19 average, countering the reduced involvement of mortgaged buyers, including buy-to-let investors. Overall transactions, however, are expected to finish the year 20% lower than 2022. The transaction volume is forecasted to stabilize at around 1 million in 2024, climbing to 1.16 million by the end of the forecast period.
For the mainstream market, Savills projects a 17.9% price increase over the five years to 2028, with the average house price expected to reach £300,108 by the period’s end. This upgrade is underpinned by the anticipation that the Bank of England will commence rate cuts in the second half of 2024, allowing for price growth from the year’s end.
Lucian Cook, head of residential research at Savills, remarked: “Interest rates are expected to have peaked and the worst of the house prices falls look to be behind us, but the first cut to rates still looks to be some way off. This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak to trough house price adjustment in the order of -10%.”
Cook anticipates a gradual reduction in rates, leading to a progressive restoration of buying power and a steady market recovery. He expects the most significant growth to occur in 2027, with rates reaching a long-term neutral level, thereafter aligning growth with income rates.
Prime markets, particularly prime central London, are predicted to see a quicker response to improved sentiment, with significant growth anticipated over the next five years. Frances McDonald, director of residential research at Savills, asserts that PCL is likely near its lowest point and expects a recovery, albeit less aggressive than previous cycles.
The forecast also hints at regional variations, suggesting London and the South East may face greater price falls in 2024, while Wales and the North East could see the strongest growth over the next five years. Looking ahead to 2028, London is expected to lead UK price growth once more, propelled by population pressure and a robust economic outlook.