Savills has increased its house price projections for this year and tweaked the forecast for the next few years. What is expected to happen across the UK property market between now and 2025?
National estate agency Savills publishes five-year property market predictions annually. The agency has now revised its outlook on the sector’s recovery from the COVID-19 pandemic. This new research shows several changes compared to its original prediction.
The upgraded forecasts come after house prices across the UK have continued to rise strongly in 2021. According to Nationwide, house prices increased by 5.6% in the first six months of this year.
The outlook for 2021
In the run up to the stamp duty holiday deadline in June, there was a rush of activity in the property market. Elevated levels of demand are continuing against the backdrop of low supply. This imbalance looks set to remain, which has led Savills to change its house price growth projections to 9% for the year.
Property transactions will slow down over the remainder of 2o21. However, national transaction levels are likely to surpass 1.6m this year. This figure is about 35% higher than the average for the five years before the pandemic.
Lucian Cook, head of residential research at Savills, says: “New buyer demand continues to outweigh supply despite the potential stamp duty saving falling from £15,000 at June 30 to just £2,500 until the end of September, and this against low levels of supply.
“Such strong growth in 2021 will leave less capacity for growth over the next few years, particularly as interest rates are expected to rise a little earlier than leading commentators had previously projected.”
Growth for the coming years
Savills predicts there will be less capacity for growth after 2021. Between 2022 and 2025, UK house price growth is expected to come in at 11-12%. In the five years to 2025, house prices are forecast to increase by a total of 21.5%.
The national estate agency does not predict a major house price correction. In the coming years, the pattern of growth depends on the extent the property market normalises and what this will mean for house prices.
A soft landing is projected due to the current pace of economic recovery. Employment levels have been contained and are predicted to progressively return to pre-COVID levels. Additionally, buyers have locked in low-cost fixed-rate mortgages for longer periods. Interest rates will likely rise gradually. This will lead to a squeeze on affordability in the years to come.
Regional areas far from the capital are likely to see the most growth. Savills believes the north-west of England and Yorkshire and the Humber will lead house price growth in 2021 with a 10.5% rise. Additionally, the estate agency projects these regions will see the strongest growth in the five years to 2025 with a 28% increase.
London is expected to see a 7% rise by the end of 2021. However, growth will likely remain low in the capital during the following years, amounting to only a 12.4% increase in the five years to 2025. This is the lowest level of growth for any UK region.
While the COVID-19 pandemic has changed the landscape for many sectors, the UK property market continues to show resilience and strength. In particular, regional parts of the north will likely continue leading the way.
With major investment coming to towns and cities in the north, this will likely bring further growth to these areas. This is causing a north-south divide in terms of house price growth, which is expected to continue to widen.