Britain’s housing market is past “peak pain” and prices look likely to bottom out by next summer, according to the estate agency Savills.
The average UK house price is projected to fall by 3% in 2024, after a 4% drop this year, the upmarket estate agent and property advisory firm said in its five-year outlook.
Prices held up slightly better than expected in 2023, according to Savills, as mortgage markets settled over the spring and autumn months, after the chaos unleashed by Liz Truss’s mini-budget just over a year ago. Property values are estimated to be down a total of 7% since the autumn of last year to the end of 2023.
Savills expects the Bank of England to start cutting interest rates in the second half of 2024, reducing its base rate to 4.75% by the end of that year, from 5.25% now. The property company forecasts rates will fall to 1.75% in 2027.
The central bank has hinted that interest rates are likely to stay high for a prolonged period as it tries to tackle stubborn inflationary pressures. It left interest rates unchanged for the second time in a row last week after raising them to the highest level since the 2008 financial crisis, warning that the economy would be on the brink of recession in the coming election year.
Savills is forecasting a return to house price growth of 3.5% in 2025, rising to 5% in 2026, 6.5% in 2027 and slowing again to 5% in 2028.
The forecasts came as the mortgage lender Halifax said UK house prices rose last month after a run of six monthly falls as sellers adopted a cautious attitude, leading to a shortage of homes on the market.
The average price of a property rose to £281,974 in October, up by 1.1% from September, an increase of almost £3,000 and the first time prices have gone up since March. Compared with October last year, prices fell by 3.2%, smaller than the annual decline of 4.5% in September.
Lucian Cook, Savills’ head of residential research, said: “Interest rates are expected to have peaked and the worst of the house prices falls look 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 [fall] in the order of 10%.
“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.”
As mortgage costs shot up over the past year, cash buyers have been the most resilient buyer group, with activity 3.5% higher than the 2017-19 average.
However, reflecting fewer deals with mortgaged buyers, in particular buy-to-let investors, overall property transactions are expected to end this year 20% down on 2022 at just over 1m, and stay at this level next year.
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The housing market remains in the late stages of a typical housing market cycle, Savills said. That suggests slightly greater house prices falls in London and the south-east next year, where buyers continue to need bigger deposits and borrow more relative to their income, and the strongest overall price growth in Wales and the north-east over the next five years.
However, London is forecast to lead prime and mainstream house price growth again from 2028, driven by population pressures and a stronger economic outlook.
Prime property in central London (the top 5% to 10%), which attracts international as well as wealthy UK buyers, is the only market segment projected to avoid price falls in 2024, although political uncertainty in an election year and higher taxes will weigh on values. The average luxury London property, worth £4.7m, could experience a gain of £800,000 over the next five years.
Kim Kinnaird, the director of Halifax Mortgages, said: “Prospective sellers appear to be taking a cautious attitude, leading to a low supply of homes for sale. This is likely to have strengthened prices in the short term, rather than prices being driven by buyer demand, which remains weak overall.
“While many people will have seen their income grow through wage rises, higher interest rates and wider affordability pressures continue to be challenges for buyers.”
