Savills, the estate agent, has adjusted its predictions, now projecting an average increase of £61,500 in house prices over the next five years. Previously forecasting a 17.9% rise by 2028, they’ve revised it to 21.6%.
Additionally, their annual forecast for 2024 now anticipates a 2.5% increase, a change from their earlier expectation of a 3% decline due to reduced mortgage costs.
Savills had previously expected house prices to fall by 3 per cent this year, but made the revision on the back of falls in the cost of mortgage debt.
Savills predicts that housing transactions will reach 1.05 million this year, a slight increase from the 1.01 million forecasted previously. Despite this, the housing market remains susceptible to short-term fluctuations in debt costs and political uncertainty leading up to the General Election.
According to Lucian Cook from Savills, the outlook for house prices has improved since their last forecast in November. This improvement is attributed to slight reductions in mortgage costs, which have become less volatile recently.
According to Mr. Cook, there’s a slight improvement in the outlook for economic growth, indicating moderate house price growth this year, with greater potential in the following years.
In November, purchasing a property with a 25 per cent deposit on a two-year fix could cost 5.34 per cent. However, now, that same mortgage would cost 4.84 per cent, while a five-year fix could cost 4.5 per cent.
These changes reflect a more stable mortgage market, with reduced costs compared to previous forecasts, potentially influencing property buyers’ decisions.
He stated, “The increased cost of debt suppressed demand and pushed prices downwards. However, the fiercely competitive mortgage market has seen lenders adjusting their rates in anticipation of potential cuts in the bank base rate. This has bolstered buyer confidence and led to a partial recovery in prices.”
As a result, monthly mortgage approvals surged above 60,000 in February and March. By the end of April, annual house price growth stood at 0.6 per cent.
Mr. Cook noted that ongoing uncertainty in the Middle East and higher-than-expected US inflation have led to a continued rise in swap rates, which lenders use as the basis for their fixed rates.
He stated, “As a result, we are unlikely to witness a significant further decline in mortgage rates this year. Short-term fluctuations in the cost of debt and house prices, as observed over the past week, remain possible.”
Additionally, he highlighted the potential impact of an Autumn election on sentiment towards the end of the year. However, polling data suggests that most buyers and sellers have already factored in the possibility of a change in government, thus mitigating the potential impact.
Savills indicated that affordability challenges would become increasingly significant towards the end of the next five-year period, particularly in London and the South East, where markets are already strained.
While overall house prices are projected to surge by over £60,000 in the coming five years, regional discrepancies are expected. For instance, Savills predicts a 28.8 per cent increase in the North West, whereas London is anticipated to see a more moderate rise of 14.2 per cent during the same period.
Following the North West closely in terms of price growth is Yorkshire and the Humber, expected to experience a 28.2 per cent surge. Similarly, Wales and Scotland are poised for robust performance, with anticipated price growth rates of around 26.4 per cent and 25.8 per cent, respectively.
Jeremy Leaf, a North London estate agent, commented on the figures, highlighting the housing market’s resilience despite economic forecasts. He emphasized that while concerns persist about the cost of living and a slower-than-expected decline in the base rate, demand for housing remains strong. Leaf noted that realistic sellers are the ones likely to benefit, even though some price adjustments may occur in the short term.
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