U.K. home buyers can expect prices to rise by 22.2% over the next five years, according to a report from Savills, released in the U.K. on Wednesday.
Savills’s latest mainstream house price forecast predicts average prices will increase by £80,000 (US$104,187) in that time frame. Next year, prices are expected to jump 2%, down from a previous prediction of 4%, according to the real estate firm.
“Our previous forecast assumed falling interest rates would boost borrowing and investment, supporting house price growth. However, with inflation stuck at 3.8%, economists are less confident about the pace in which rate cuts will happen,” Lucian Cook, head of residential research at Savills, said in the report. “Higher interest and mortgage rates next year, as well as a weaker labor market, with a slight rise in unemployment and slowing wage growth, are likely to constrain price growth.”
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Economic concerns have led to a quieter housing market this year, with higher levels of supply than demand. Still, prices have remained stable, increasing 0.5% so far this year, according to data from Nationwide, a bank and mortgage provider, cited in the report.
Awaiting the next budget announcement, which comes later this month, has also sidelined some buyers, though any tax hikes in the new budget will likely impact the luxury sector more than the mainstream market.
“Ultimately, however, the biggest influence on the mainstream market will come from how financial markets react to the budget itself,” Cook said.
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The U.K.’s economy is expected to get stronger past 2026, with “low inflation, rising GDP growth, falling unemployment, and an undersupply of new homes, which will maintain upward pressure on real prices,” according to Savills.
Savills predicts price growth to peak in 2028 and 2029, when home values will increase 5% and 5.5%, respectively, and by 2028, prices will increase on real terms for the first time since the end of 2022.
The housing markets in the U.K.’s more affordable regions have been more resilient this year, and will therefore see some of the highest rates of price growth over the next five years. For example, by 2030, home prices in the North West are forecast to be 15% below the U.K. average—a decade ago, that difference was 30%. Meanwhile, London home prices will be 33% higher than the national average, down from 70% in 2017.
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“Regional performance is largely influenced by where we are in the housing market cycle,” Dan Hill, research analyst at Savills, said in the report. “Since 2016, we’ve been in the second half of the cycle, where the more affordable regions in the North and Scotland outperform the U.K. average, and capacity for growth in London and the South is more limited. In the absence of any whole market price correction, this pattern is likely to persist for the next five years, with the strongest growth shifting to late-stage markets in the North East, Scotland and Wales.”