Is a new housing boom on the way? Halifax report that British house prices are now at record levels, while Savills has upgraded its forecast for the next five years, with ‘a steady improvement in affordability’ to drive prices up. Annabel Dixon reports.
It’s that time of year for crystal gazing. And right on cue, Savills has unveiled its house price forecast for the next five years.
The estate agency expects mainstream house prices to climb by 4% (£14,500) in 2025, and by 23.4% (£84,000) between 2025 and 2029.
The eagle-eyed will notice that Savills’ forecast has been revised up from May, when the firm reckoned that house prices would increase by a more modest 3.5% in 2025, and by 21.6% in the five years up until the end of 2028.
But there’s no such thing as a uniform UK housing market, of course. The strongest house price growth next year is expected in the north west, north east, Yorkshire & the Humber, and Scotland (all 5%), where mortgaged buyers are under less pressure, says Savills.
And the weakest growth is predicted in the south west and east of England (2.5%), where the estate agency expects ‘to see some residual impact of the unwinding of the ‘race for space’’. Meanwhile London house prices are set to rise by 3% in 2025.
So, what’s behind the uprating? ‘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,’ says Lucian Cook, head of residential research at Savills.
‘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.’
Savills also revealed that house prices are on track to climb by 3% this year. So, how does that look against house price forecasts at the start of 2024? Clue: quite different. Have a glance at our round-up of 2024 house price predictions.
UK house prices hit record high
Savills’ more optimistic outlook appears to be backed up by news that the average UK house price reached a record high of £293,999 last month. According to Halifax, it beats the previous peak of £293,507 set in June 2022.
Property values climbed by 0.2% in October, the fourth monthly increase in a row. They rose by 3.9% on an annual basis, slightly lower than in September, the lender reports.
‘That house prices have reached these heights again in the current economic climate may come as a surprise to many,’ Amanda Bryden, head of mortgages at Halifax, says perceptively.
‘But perhaps more noteworthy is that they didn’t fall very far in the first place. Despite the headwind of higher interest rates, house prices have mostly levelled off over the past two and a half years, recording a 0.2% increase overall.
‘That’s a significant slowdown compared to the 21% rise we saw in the equivalent period from January 2020 to the summer of 2022.’
Rate cut fuels market momentum
To the City, where the Bank of England’s decision to cut the base rate by 0.25% knocked the Autumn Budget and Donald Trump out of the headlines (in some quarters, anyway). The Bank’s Monetary Policy Committee (MPC) voted by 8-1 to reduce the base rate to 4.75%.
Rightmove’s mortgage expert, Matt Smith, warns that it comes at the end of a run of key macro-economic and political events on both sides of the Atlantic: ‘All of this has resulted in a view that base rate will be cut at a more moderated pace than previously expected and has been priced in by lenders.
‘Therefore, we are likely to see average mortgage rates drift up a little in the short term, before starting to fall back again.’
Still, the Bank’s reduction ‘will certainly give a kick to those sitting on the fence who are undecided about whether to stick or twist’, says Jeremy Leaf, north London estate agent and a former RICS residential chairman.
Over at Foxtons, CEO Guy Gittins is gearing up for a ‘very strong end to the year and an even stronger start to 2025’.
He explains: ‘With a stamp duty deadline now looming, we expect to see a supercharged level of market activity in the coming months as buyers look to complete before 1st April next year. Today’s decision to cut rates will only help add to this increased momentum’.
But Nick Leeming, chairman of Jackson-Stops, argues that ‘the bigger drag on confidence and activity remains a lack of available housing stock. Competition remains fierce in areas where affordable property is scarce’.
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