Thanks to an improved economic outlook, UK house prices have seen a major turnaround in Savills’ latest forecast compared with last year’s outlook.
By the end of 2024, UK house prices are expected to have risen, on an annual basis, by an average of 2.5%, according to the latest five-year forecast released by Savills. This is a significant improvement on the agency’s previous prediction for a -3% fall by the end of the year, which it had forecast back in November last year.
The number of housing transactions has also been revised upwards from Savills, which now expects there to be a total of 1.02 million homes changing hands by the end of 2024, up from the 1.01 million previously expected. The five-year forecast offers a much more positive outlook for the market than many had penned for the year.
On a five-year basis, UK house prices are now expected to increase by a cumulative 21.6% between 2024 and 2028. This is an average for the whole country, so there will of course by significant regional variations. Therefore, for investors or homebuyers considering the market right now, looking at performance in individual locations is key.
The strongest markets in the UK
Following on from this, Savills has provided a breakdown of UK house prices on a region-by-region basis, showing the areas that are expected to see the strongest performance down to those where growth will be the weakest.
The north west of England, which has long since been touted as a top investment spot thanks to its resilient market and pricing, comes out top of the list. Over the next five years, this area should see an average cumulative price rise of 28.8%, giving buyers there the biggest chance of achieving strong capital appreciation.
This is followed by Yorkshire and the Humber, where house price growth is expected to reach a cumulative total of 28.2% between 2024 and 2028.
At the bottom of the list, London continues to lag behind average UK house prices in terms of growth, and Savills notes that values there may only climb by a cumulative 14.2% over the five-year period. The next lowest region was the east of England, with predicted cumulative growth of 18.1%.
UK house prices have greater potential
One of the things holding UK house prices back over recent months has been mortgage rates, which went up alongside the Bank of England base rate. While this was sparked by the mini Budget back in 2022, a number of factors have meant that interest rates have remained at their current level since last August.
Political uncertainty is also cited as a factor that could be reducing confidence in the housing market at the moment, as people wait to see how the build up to a general election might affect the market. However, with the election expected to be called before the end of the year, this uncertainty should be relatively short-lived.
Lack of affordability, due to both higher borrowing costs and the cost of living crisis, has impacted UK house prices, but with news that transactions are once again on the up, the expectation is that this should begin to push prices higher once more. However, the likes of London, where prices are already extremely high, is treading a different path because of this, causing the capital to lag behind.
Recovery in buyer confidence
Lucian Cook, head of residential research at Savills, said: “The outlook for 2024 has improved since our last (November 2023) forecasts as mortgage costs have nudged down slightly and are much less volatile.
“The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.
“In November, a 75% LTV mortgage from Nationwide on a 2-year fix cost 5.34%, and mortgage approvals were down below 50,000 per month. The higher cost of debt dampened demand and put downward pressure on prices.
“However, the highly competitive nature of the mortgage market has meant that lenders have fairly aggressively priced in the prospect of cuts in bank base rate, causing buyer confidence, and prices, to recover somewhat.”
