Knight Frank’s house price predictions for the next five years have been revised, as the estate agent points out some lessons we’ve learned from the pandemic.
High levels of demand have continued to outweigh the pace at which housebuilders can keep up with new supply, which is one of the key drivers behind the continuing house price growth we have seen in recent years.
However, the idea of a steep climb followed by a dramatic drop is looking less and less likely, with the famously steady UK housing market now expected to see a much slower leveling off, according to Knight Frank’s latest house price predictions.
Its latest quarterly analysis saw it revise its forecast up from what was previously expected. It now expects that house price growth will reach 8% in 2022, which is considerably higher than its original 5% projection.
House price growth reaching a peak
The house price growth we have witnessed over the past couple of years seems likely to taper off, but it will by no means fall off a cliff, according to Knight Frank.
Tom Bill, head of UK residential research at Knight Frank, said: “We still believe annual growth will return to single digits by the end of the year as supply builds and demand is put under pressure by rising mortgage rates and spiking inflation.
“House price growth is peaking as supply rebuilds and mortgage rates normalize. But one lesson from the pandemic is that nothing reverts to normal overnight, which is particularly true in a relatively slow-moving market like residential property. We, therefore, expect a more gradual return to earth for prices.”
“The distortive effect of low supply has also kept rental value growth high. A sharper slowdown in the sales market would have boosted supply and increased downwards pressure on rents as owners let out property that failed to sell for the asking price,” he added.
House price predictions up to 2026
According to Knight Frank’s latest house price predictions for the residential sector, five-year cumulative house price growth across the UK will be around 16.9%. This sees 2022’s 8% price growth followed by 1% for 2023, 2% for both 2024 and 2025, and 3% for 2026.
It breaks down its house price predictions by region. Leading the way at present over the next five years is the East of England, which could see above-average growth of 18.5%. Other strong performers are the East Midlands (18%), West Midlands (17.5%) and South East (17.3%).
In the rental market, the estate agency now believes the UK as a whole will see a 17.1% cumulative increase in rental prices over the next five years. This breaks down as 4% in 2022, 3.5% in 2023, 3% in both 2024 and 2025, and 2.5% in 2026.
Demand from tenants has been far outstripping supply in many areas of the UK. In particular, UK cities are falling back into favour compared with seaside towns, as the country gets to grips with its ‘new normal’ and more workers return to cities.
This is in some ways a reversal of the race for space that seemed to dominate buying and moving trends since the start of the pandemic. According to Rightmove, appetite is growing in the UK’s 50 largest cities, with rental competition among tenants up by an average of 29%.
As ever, the UK housing market proving both resilient and flexible to the needs of the current market, and will remain a key investment target for many buyers looking for secure assets with expected long-term growth prospects.
Knight Frank consistently evaluates and updates its house price predictions based on changing market circumstances and events.
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