Britain’s housing market is past “peak pain” and prices look likely to bottom out by next summer, according to Savills.
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 minus 10 percent. 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.”
Property transactions are expected to rise to 1.16 million per year by the end of the forecast period in 2028 as mortgage buyers gradually return to the market. Currently, transactions remain at around 1.01 million and may do so until next yer.
The research used data from Oxford Economics and Nationwide Building Society.
Below are the average house prices predicted by Savills by 2028, followed by the increase it predicts compared with 2023 house prices in cash terms:
• North East, £186,695, £32,940
• Wales, £239,663, £42,224
• North West, £241,944, £40,645
• Scotland, £206,850, £34,820
• Yorkshire and the Humber, £230,323, £38,692
• West Midlands, £283,954, £47,799
• East Midlands, £266,712, £43,759
• South West, £348,082, £52,797
• South East, £423,702, £60,642
• East of England, £397,060, £56,830
• London, £577,256, £70,376
The forecasts apply to average prices in the second hand property market. New-build property values may not move at the same rate.
Savills expects the Bank of England to start cutting interest rates in the second half of 2024, reducing its base rate to 4.75 percent by the end of that year, from 5.25 percent now. The property company forecasts rates will fall to 1.75 percent in 2027.
The central bank has hinted that interest rates are likely to stay high for a prolonged period as it tries to tackle stubborn inflationary pressures.
Savills is forecasting a return to house price growth of 3.5 percent in 2025, rising to five percent in 2026, 6.5 perfcent in 2027 and slowing again to 5 percent in 2028. The forecasts came as the mortgage lender Halifax said UK house prices rose last month after a run of six monthly falls as sellers adopted a cautious attitude, leading to a shortage of homes on the market
The average price of a property rose to £281,974 in October, up 1.1 percent from September, an increase of almost £3,000 and the first time prices have gone up since March, according to the mortgage lender Halifax. Compared with October last year, prices fell 3.2 percent, smaller than the annual decline of 4.5 percent in September.
Kim Kinnaird, the director of Halifax Mortgages, said: “Prospective sellers appear to be taking a cautious attitude, leading to a low supply of homes for sale. This is likely to have strengthened prices in the short-term, rather than prices being driven by buyer demand, which remains weak overall.
“While many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers.”
Homeowners are predicted to see a £45,000 increase to their properties on average by 2028 as market demand and buying power recovers, according to a forecast.
Property adviser Savills, which released the research, said the market looks set to “bottom out” around the middle of next year.
Across Britain, the average property value will increase to £300,108 in 2028, marking a £45,521 or 17.9 percent increase from an average house price of £254,587 in 2023, according to Savills.
The average house price is projected to fall by thee percent in 2024 but Savills said this will be followed by price increases in 2025, 2026, 2027 and 2028 as affordability pressures slowly ease.
The expectation of a gradual reduction in interest rates suggests a progressive restoration of buying power and recovery in demand, they said.
