Savills predicts a five-year (2024-2028) growth forecast of 17.9 per cent – equivalent to a £45,521 gain on the average home by the end of 2028 – as mortgage costs start to fall. This will take the average house price to £300,108 by the end of the forecast period.
Analysts at the estate agency said that “after a rollercoaster twelve months, the UK’s housing market is past ‘peak pain’”.
The average UK house price is projected to fall by three per cent in 2024 as affordability pressures slowly ease, with the expectation that the Bank of England base rate will stand at 4.75 per cent by the end of next year.
Savills said that values held up slightly better than expected in 2023, as mortgage markets settled over spring and autumn months.
Savills has forecast that annual falls will stand at four per cent by the end of 2023, which will leave values down a total of seven per cent since the autumn of 2022 to the end of 2023.
Prime Central London holds firm
“Prime” central London is expected to see the least downward pressure on prices next year, given much less reliance on mortgage debt and the relative value on offer to a range of wealthy domestic and international buyers.
Prices in this market remain 19 per cent below their 2014 peak. With the average property in the prime central London sector at £4.7m, the typical property in this part of the market could see a gain of £800,000 by the end of 2028.
Prime central London is the only market projected to see values level off in 2024, with 3.5 per cent price growth expected in 2025, rising to six per cent in 2026 as the global economy picks up and any domestic political uncertainty surrounding the next general election dissipates, and 18.7 per cent over the next five years.
Transaction predictions
Savills found that cash buyers have remained the most resilient buyer group over the past year, with activity 3.5 per cent higher than the 2017-19 average.
However, less activity among mortgaged buyers – most notably buy-to-let investors – means overall transactions are expected to end this year 20 per cent down on 2022.
Transactions are expected to remain at around 1m in 2024, rising to 1.16m at the end of the forecast period (2024-28), as mortgaged buyers gradually return to the market; slightly below a pre-pandemic norm of 1.2m.
Lucian Cook, head of residential research at Savills, said: “Interest rates are expected to have peaked and the worst of the house price 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 per cent.
“The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand. We expect growth to accelerate as affordability pressures ease, with the strongest growth forecast for 2027 when rates reach their long-term neutral level. From there we expect growth to settle at a rate broadly in line with income growth.”
