According to the latest report from Savills, interest rate cuts that were expected in 2026 have been “pushed out to later years” as inflation has remained sticky, lowering house price growth expectations.
The report said that in the medium term, the housing price outlook was “brighter”, especially in “late-cycle housing markets” outside of London and the South of England.
Savills estimated mainstream house price growth at 22% over the next five years, which it said was supported by the “greater latitude” given to lenders following revised Financial Conduct Authority (FCA) guidance in March last year around loan-to-income (LTI) limits and higher-loan-to-value (LTV) lending.
Lucian Cook, head of residential research at Savills, said: “Though, on the face of it, while this does not have quite the same milestone status as some of the legislative changes around planning, taxation and residential lettings, it does open up capacity for more lending at high-loan-to-income and loan-to-value ratios, widening the range of buyers and their purchasing power when sentiment improves.”
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Developers struggling to take advantage of improved planning environment
On housebuilding, Savills said that despite a “more relaxed planning environment” in England and the “promise of further improvements”, developers have “struggled to take advantage” due to “weaker sales demand”.
Cook said there was “nothing of substance” in the Autumn Budget to suggest that this would significantly change this year, but as stronger price growth and sales activity are expected from 2027, he expects the “brakes gradually come off and housebuilders’ appetite for land to grow”.
He added that falls in interest rates and gilt yields will be crucial in “restoring institutional demand” for Build to Rent.
Housing associations will return to the land market as more Social and Affordable Homes Grant funding will be allocated from mid-2026.
Cook said the return of mandatory housing targets has meant that those holding strategic land will have a “good opportunity to secure the planning [that] unlocks its development potential”.
However, he warned that uncertainties remained around whether the government would “seek to extract via land capture”.
“How much to demand without locking up the land market remains a riddle [that] government is finding difficult to solve. But we must hope lessons have been learnt from London, where onerous affordable housing requirements have now been eased in an attempt to revive an ailing residential development market,” Cook noted.
Renters’ Rights Act ‘most easily digested’ by larger wealthier landlords
Looking at the buy-to-let (BTL) market, Cook said the Renters’ Rights Act, which gained royal assent last year, has shaped its thinking on the residential investment market outlook for over two-and-a-half years.
He explained: “The provisions are likely to be most easily digested by larger, wealthier landlords who are best placed to deal with an additional regulatory burden and spread their risk across a wider portfolio of properties. A further wave of sales by smaller, more indebted landlords is likely to follow. Some of those properties will be bought by first-time buyers, while others – which meet larger landlords’ prescriptive minimum return expectations – will stay within the sector.
“However, there is little to suggest that the sector will remain anything other than undersupplied, especially given the additional income tax rate on investment income introduced by Rachel Reeves. This is likely to underpin expectations for future rental growth.”
