UK property prediction

4 things that will affect the UK property market in the next five years

Predicting the future of the UK property market isn’t an easy task, but new research from Savills looks at some of the top factors that could influence the industry. 

Over the next five years, house prices in the mainstream market are expected to increase by an average of 13.1%. The most elevated rises will be seen in the north of England, where the housing market and the business and economic outlook are booming.

But there are certain events and trend changes in particular that estate agent Savills thinks will tip the scales in the UK property sector.

Interest rates and regulations impacting mortgages

Savills believes that the rapidly rising house prices we have seen in the past year and a half will slow down. And while inevitable interest rate rises will affect the mortgage market, they will increase slowly enough to not put “households’ finances under undue stress”.

In terms of regulation, the Bank of England has proposed relaxing affordability stress test rules, which could make borrowing easier. However, there is still a requirement that no more than 15% of a bank’s lending can be at a loan to income ratio of 4.5 or more. Savills believes this, too, could cap further house price growth in the UK property market.

It adds: “This will put even more emphasis on the income returns for residential investors, tempering demand from mortgaged buy to-let landlords. The effect will be greatest in the markets of London and the South, where yields and future capital growth prospects are lower.”

Location choices post-pandemic

How and where people want to live has certainly been affected by the pandemic. Both homeowners and renters are now more likely to want a dedicated workspace, as well as more outdoor space.

Savills expects that demand for family homes will be more focused on the commuter belt and its fringes “as hybrid working patterns become more established”.

It adds: “However, even if people commute further but less often, the quality of that commute will remain important. Not only will it concentrate the demand for family houses to areas with good transport infrastructure, but it also looks set to create a spin off market for city centre boltholes.”

But the agent doesn’t think this spells the end of city centre living; perhaps just a change in who wants to live there.

Environmental issues coming to the fore

Thanks to the influence of COP26, and with a renewed drive from the government, the rise of zero-carbon homes could be a real change in the coming years for the UK property market.

Importantly, this drive could have a big impact on private landlords, particularly with EPC regulations changing. Savills believes that some will reconsider any investment properties they own that are less energy efficient. In turn, this could push demand towards more modern homes.

The build-to-rent sector in particular could be a beneficiary of this. Savills adds: “This further plays to the hands of institutions, for whom it will be easier to achieve minimum EPC requirements on purpose-built stock, but who also have economies of scale to deal with legacy issues on large portfolios.”

Big changes for developers

Savills notes: “The mini housing boom has left housebuilders with healthy balance sheets and capital to deploy, resulting in short-term upwards pressure on land values. But with reduced price growth expectations and high build cost inflation, the outlook is less clear.”

The Help To Buy scheme looks set to wrap up in 2022, which will create a gap as it as underpinned housebuilding since 2013. This could be filled by a “larger and more diverse build-to-rent sector”, says Savills, which looks to be a very secure market for developers.

The future of housing policy remains uncertain, though, with the government regularly changing up the housing minister. With current turbulence around the Conservative leadership, the uncertainty is not likely to be resolved any time soon.

BuyAssociation has a range of property investment opportunities available across the UK, from traditional buy-to-let to build-to-rent and HMOs. Browse a selection of our opportunities here, or get in touch for more information. 

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