Average UK house prices could rise by as much as £84,000 over the next five years, according to a new house price forecast from Savills.
The national estate agent believe house prices will return to consistent year-on-year growth as inflation returns to its 2% target and interest rates continue to fall over the next couple of years.
The national estate agent’s forecast predicts that house prices will increase by 4% next year (£14,500) and by 23% by 2029, as mortgage rates ease and a broader spectrum of home movers return to the market.
Currently, house prices are 2.3% below their August 2022 high on a nominal basis. According to the ONS and Nationwide, when this figure is adjusted for inflation, it shows prices have fallen by 10.5% over this period.
Savills head of residential research Lucian Cook said: “With less external noise, house prices in the medium term will be dictated by the fundamentals of demand, supply and affordability”
“The direction of mortgage rates has been key to buyer decisions over the past two years and decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.
“A steady improvement in affordability should allow for house price growth to gain momentum over the next couple of years. But there is still some potential for a bumpy ride. The market will remain sensitive to short-term fluctuations in the cost of debt and changes to property taxation have the potential to cause some short-term disruption.”
Savills director of research Emily Williams added: ““Looking ahead we can expect some home movers to continue to hold off on moving until rates settle in 2027, when they will have also benefited from several years of house price growth to build up equity.”
“As such, there is potential for a sharp rise in activity among second and third steppers in the second half of our forecast period, as pent-up demand from the period of high interest rates is released.
“However, the number of first-time buyers active in the market is expected to stay below pre-pandemic levels due to a lack of any government support to replace Help to Buy. While increased regulation in the rental sector, combined with the newly increased second-home surcharge, will further dampen demand from both cash and mortgaged buy-to-let investors.”