When Savills issued its most recent five-year house price forecast at the tail of last year it stated that the average UK house price would fall by 10% in 2023 when interest rates peak.
The agency said that there would be a growing divergence between cash and equity-rich or cash buyers and other groups in their ability to transact this year, and between the mainstream market and prime markets where housing wealth is most concentrated.
Despite a slight drop in borrowing costs in recent weeks, Savills continues to forecast that residential property values in the UK will drop by an average of 10% this year.
Frances McDonald, Savills research analyst, has appeared on Bloomberg TV where she discussed the outlook for the UK property sector with presenters Francine Lacqua and Tom Mackenzie.
McDonald said: “It wasn’t until we started to see interest rates beginning to rise [early last year], and as a result of that, rising inflation, that we started to see house prices fall.
“We saw prices fall by around 2.4% across the UK during the final quarter of 2022, and we are expecting that those price falls will continue into this year. We are expecting that prices will be 10% lower by the end of this year.
But McDonald says that it is important to remember that Savills is expecting regional disparity in property price falls, with London and the South East expected to see prices depreciate “more significantly” than the UK average.
But there is room for optimism when it comes to house price growth in the medium- to longer-term, thanks in part to low unemployment levels, according to McDonald.
By end of the forecast period (2027), Savills expects the average UK house price to reach £381,578, a £22,290 gain over five years. This will put prices a significant £92,000 above the pre-pandemic level.
Table 1: Mainstream market outlook and economic assumptions 2023-2027
|
|
2023 forecast |
2024 forecast |
2025 forecast |
2026 forecast |
2027 forecast |
| UK House Price Growth |
-10.0% |
+1.0% |
+3.5% |
+7.0% |
+5.5% |
| Transactions |
870k |
1,000k |
1,110k |
1,110k |
1,110k |
| Rental Growth |
+6.5% |
+4.0% |
+2.0% |
+2.4% |
+2.3% |
| GDP growth* |
-0.5% |
+1.8% |
+2.7% |
+2.1% |
+1.6% |
| Unemployment* |
4.6% |
4.5% |
4.1% |
3.9% |
3.8% |
| Bank Base Rate*(year-end) |
4.0% |
3.5% |
2.5% |
1.75% |
1.75% |
Source: Savills research, *Oxford Economics (Note: These forecasts apply to average prices in the second hand market. New build values may not move at the same rate.)