The United Kingdom’s housing market is on the path to recovery, with average house prices expected to decline by 3% next year, according to a recent report by Savills, a prominent property agent. The forecast indicates that the housing market is moving beyond its “peak pain” phase, as affordability pressures begin to ease.
Savills predicts that the Bank of England’s base interest rate will settle at 4.75% by the end of the upcoming year. This shift is anticipated to lead to a gradual stabilization of the housing market, with the market hitting its lowest point in mid-2024, as outlined in Savills’ five-year house price projection.
The report further suggests that house prices are expected to fall by 4% within the current year, reflecting the challenges that the housing market has recently faced.
This assessment follows the decision by the Bank of England’s Monetary Policy Committee to maintain the base interest rate at 5.25% for the second consecutive meeting last week, marking a 15-year high in rates. The committee’s statement highlights market expectations that the base rate will remain around 5.25% until the third quarter of the following year, gradually decreasing to 4.25% by the end of 2026.
Savills notes that despite “a rollercoaster 12 months,” house prices have held up better than initially expected in 2023. This stability is attributed to a settling of mortgage markets during the spring and autumn months.
The property agent anticipates that less debt-dependent prime regional markets will be the first to recover, experiencing only a modest decline of 1.5% in 2024, as outlined in Savills’ report.
While home transactions are expected to remain at around 1 million in the upcoming year, they are projected to increase to 1.16 million by 2028. This rise in transactions will coincide with the gradual return of mortgage buyers to the market, although it will still fall short of the pre-pandemic norm of 1.2 million transactions.
Savills’ report also highlights that house prices are forecasted to grow by an average of 17.9% over the five-year period leading to 2028, resulting in an average house price of £300,108. The base interest rate is expected to decrease to 1.75% within this five-year timeframe.
Lucian Cook, Head of Residential Research at Savills, commented on the findings, stating, “Interest rates are expected to have peaked, and the worst of the house price falls appear to be behind us, but the first cut to rates still looks to be some way off. This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak-to-trough house price adjustment in the order of minus 10%.”
Cook added, “The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand. We expect growth to accelerate as affordability pressures ease, with the strongest growth forecast for 2027 when rates reach their long-term neutral level. From there, we expect growth to settle at a rate broadly in line with income growth.”
In summary, the UK housing market, though still facing challenges, seems to be on a path to stability as the worst of the price declines may have passed. Affordability pressures are expected to ease, and with a gradual reduction in interest rates, a recovery in demand and growth in the market are anticipated in the coming years. Savills’ report provides valuable insights into the evolving landscape of the UK housing market, offering hope for both buyers and sellers in the near future.