Most forecasters are predicting house prices to dip in 2023 before returning to growth, but which regions can expect the highest levels of resilience?
In the two and a half years to September this year, UK house prices soared by an average of 24%. Spurred on by the pandemic, a stamp duty holiday and ongoing cheap mortgage deals, the market maintained a momentum that surprised many.
Now, in the face of a range of factors including the war in Ukraine and ensuing instability and cost of living increase, alongside rising inflation and reduced market confidence leading to mortgage rate hikes, the majority of outlooks are pointing to a house price fall in the year ahead.
Estate agency Savills‘ latest five-year forecast predicts a -10% fall in house prices next year as the market correction sets in, but expects a return to growth in the following years – leading to a cumulative house price increase of 6% by 2027.
The regions weathering the storm
Savills points out that in September 2021, property transactions hit a peak of 1.5 million in a frenzy of activity. Inevitably, this has since fallen, returning to pre-pandemic levels of 1.2 million and representing a return to ‘normal’.
But, despite its small size, the UK property market is home to huge variations in terms of demand and supply, as well as house prices and rental sector landscapes. Savills’ report breaks down the regions in its 2022-2027 forecast, with some potentially surprising outcomes.
Three regions in particular stand out with a well above-average outlook for the years ahead. These are the northwest, Yorkshire and the Humber and the north east, which are all expected to see house prices rise by a net 11.7% over the coming five years.
The year-by-year outlooks for the three regions are identical: -8.5% in 2023, 2.5% in 2024, 4.5% in 2025, 7.5% in 2026, and 6.0% in 2027.
One major reason for this is that house prices in these areas are already more affordable, meaning that buyers generally need to raise a lower deposit, and take out smaller amounts of borrowing than in more expensive areas.
What’s more, as the country’s levelling-up agenda progresses, many towns and cities in these regions are being targeted for more investment, making them more attractive for businesses and dwellers alike. This is boosting demand and therefore property prices.
London house prices to dip
Like the UK, London itself has a huge range of differences when it comes to house price performance, with some areas outpacing UK averages as others continue to fall. In Savills’ forecast, the capital overall is expected to see a loss over the five-year period of -1.7%.
This sees it rank at the bottom overall in the UK, underneath the east of England and the south east which are forecast to see total gains of 3%.
Savills notes: “While we expect mortgage rates to come down as margins begin to compress, they will still be high by recent standards and put pressure on growth in the first half of 2024, particularly in the areas where affordability is most stretched.
“Once the base rate begins to come down in the second half of that year, we expect to see growth return to the market with the strongest part of the recovery in 2026. We envisage it will be seen earlier and more strongly in the more affordable markets of the north.”
It does point out, though, that the capital could begin to recover more after this period of adjustment, and as the outlook returns to a more traditional housing market cycle.
“We’re forecasting that regional house price growth will converge around the UK average at the end of our forecast period, raising the prospect that London will again be in a position to deliver the strongest house price growth as we enter the next phase of the market cycle from 2027 onwards.”
