UK house prices will ‘bottom out’ next year, falling by a ‘modest’ 3 per cent, according to research by Savills.
The estate agent said the market was past ‘peak pain’ and that house prices had held up held up slightly better than expected in 2023.
In 2025, it claimed that average property prices look set to rise by 3.5 per cent to £255,593, before climbing by 5 per cent in 2026 and 6.5 per cent in 2027.
Over the next five years, UK house prices are on track to rise by 17.9 per cent, or £45,521, Savills suggests.
Predictions: UK house prices are expected to rise by £45,521 in five years, Savills claims
By 2028, the average UK property price is expected to reach £300,108, according to its data. By this point, mortgage rates are likely to be around the 3 per cent mark.
Bucking conventional regional trends, Wales and the North East of England are expected to see the strongest house price growth over the next five years. Both, according to Savills, are on track to see house prices rise by more than 20 per cent.
London is expected to see house price growth of 13.9 per cent, or £70,376, in the five years to 2028.
‘Prices remain 19 per cent below their 2014 peak in this rarefied sub-market, although the prospect of a general election is expected to push out the timing of a recovery,’ Savills said.
Average prices in the most expensive areas of London, such as Kensington and Chelsea or Knightsbridge, are expected to fall by 2 per cent next year ‘due to greater mortgage dependency,’ Savills said.
Across the rest of the UK, prime residential real estate prices are expected to only fall by 1.5 per cent next year.
Data: Regional and national house price predictions from Savills
Cash buyers are king in tough market
Savills said cash buyers remained the most resilient group over the past year, with activity 3.5 per cent higher than in the last few years.
It added: ‘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.’
Data from fellow agent Hamptons this month revealed cash buyers have purchased 34 per cent of all homes sold this year, representing a seven-year high.
Property transactions are expected to remain at around 1million in 2024, rising to 1.16million by the end of 2028, as mortgaged buyers gradually return to the market, Savills said.
Cost pressures and higher mortgage rates have dampened the housing market this year, but Savills claims borrowing costs will ease in the second half of 2024.
Last week, the Bank of England kept interest rates on hold at 5.25 per cent, giving borrowers on tracker and variable rates some breathing space.
However, there are some 1.6million mortgage borrowers expected to roll off their fixed rate mortgages next year, many of whom will currently be enjoying a mortgage rate of less than 2 per cent.
Experts at Savills think UK interest rates will be cut to 4.75 per cent by the end of 2023.
Halifax figures this week suggested UK house prices rose by 1.1 per cent in October, ending a run of six consecutive monthly falls.
Forecasts: House price and economy forecasts from Savills for the UK
Lucian Cook, head of residential research at Savills, said: ‘Interest rates are expected to have peaked and the worst of the house prices 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.’
Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.
