The UK housing market has faced its fair share of challenges in recent years, but according to research by Savills, there is light at the end of the tunnel. Savills’ latest five-year house price forecast suggests that the market is past its “peak pain” and is poised to bottom out in mid-2024. This positive outlook comes as a relief to many homeowners and prospective buyers. In this blog, we will delve into the key findings of the Savills research and explore what the future holds for the UK housing market.
Savills predicts that the average UK house price will experience a modest decrease of 3% in 2024. This decline is expected to be a result of the gradual easing of affordability pressures. One important factor contributing to this forecast is the base interest rate, which is expected to end 2024 at around 4.75%.
Lucian Cook, Savills’ Head of Residential Research, notes that interest rates are expected to have peaked, and the worst of the house price falls seem to be behind us. However, further modest price falls are anticipated in the first half of 2024, resulting in a peak-to-trough house price adjustment of around -10%. This adjustment is viewed as a necessary correction to rebalance the market.
The good news is that as affordability pressures ease and interest rates stabilize, the housing market is expected to regain its footing. Savills forecasts that the most significant growth is likely to occur in 2027, coinciding with rates reaching their long-term neutral level. Beyond that, growth is expected to align with income growth, ensuring a more sustainable and balanced market.
Savills’ research highlights regional variations in the housing market. Prime regional markets, which are less dependent on debt, are expected to recover more swiftly, with a predicted fall of just 1.5% in 2024. Prime central London, in particular, is expected to perform well due to its lower reliance on mortgage debt and the attractive value it offers to a range of domestic and international buyers.
Frances McDonald, Director of Residential Research at Savills, emphasizes the outperformance of prime central London in the coming years. She notes that a recovery in this market is long overdue, and while values may be close to their lowest point, a rebound is likely to be more gradual compared to previous cycles due to a higher tax environment and increased scrutiny of buyer wealth sources.
The past year has seen cash buyers as the most resilient group in the market, with activity levels exceeding the 2017-2019 average by 3.5%. However, a decline in activity among mortgaged buyers, particularly buy-to-let investors, is expected to result in an overall 20% reduction in transactions by the end of the year compared to 2022. Transactions are predicted to remain around 1 million in 2024, gradually rising to 1.16 million by the end of the forecast period, slightly below the pre-pandemic norm of 1.2 million.
Savills’ research suggests that the UK housing market is currently in the late stages of a typical housing market cycle. This may result in more significant price falls in London and the South East in 2024, while Wales and the North East are expected to experience the strongest overall price growth over the next five years. However, Savills anticipates an inflection point in 2028 when London is expected to lead price growth across the UK once again. This shift will be driven by underlying population pressure and a stronger economic outlook.
The UK housing market has weathered its fair share of challenges in recent years, but the Savills research paints a positive picture of the future. As affordability pressures ease and interest rates stabilize, the market is expected to recover, albeit gradually. Regional variations are expected, with prime central London standing out as a promising market. While the road ahead may have some twists and turns, the UK housing market appears to be on a path to recovery, with the potential for sustained growth in the years to come.