Savills predicts that the UK housing market has passed its lowest point, with prices expected to stabilize by next summer. Despite a 4% decline in 2023, the agency forecasts a 3% drop in average house prices in 2024, followed by a recovery in subsequent years. Savills anticipates Bank of England interest rate cuts in 2024, contributing to the market's revival. London and the south-east may experience further price declines, while Wales and the north-east are projected to see robust growth. Cash buyers remain resilient, but overall property transactions are expected to decrease by 20% in 2023.
Savills a prominent estate agency, suggests that the UK housing market has surpassed its "peak pain" and anticipates a stabilization of prices by the next summer, marking a turning point from the recent downturn. According to Savills' five-year outlook, the average UK house price is expected to decline by 3% in 2024, following a 4% drop this year.
The property market performed slightly better than anticipated in 2023, as mortgage markets settled in the spring and autumn months. The estate agency attributes the 7% total decrease in property values since the autumn of the previous year to the end of 2023.
Savills predicts that the Bank of England will initiate interest rate cuts in the second half of 2024, projecting a reduction in the base rate from 5.25% to 4.75% by the end of that year. The forecast extends to a further drop to 1.75% in 2027. Despite the central bank hinting at sustained high-interest rates to combat inflation, Savills envisions a return to house price growth, estimating a 3.5% increase in 2025, followed by 5% in 2026, 6.5% in 2027, and a slight deceleration to 5% in 2028.
These predictions coincide with Halifax's recent report that UK house prices experienced a rise last month after six consecutive monthly declines. Sellers adopting a cautious approach contributed to a shortage of homes on the market, leading to a 1.1% increase in the average property price to £281,974 in October compared to September.
The expectation of a gradual reduction in interest rates is seen as a positive sign for restoring buying power and stimulating demand. Savills anticipates accelerated growth in 2027 as affordability pressures ease, aligning with the projected long-term neutral level of interest rates.
The impact of rising mortgage costs over the past year has been more pronounced among mortgaged buyers, particularly buy-to-let investors, leading to an overall 20% decrease in property transactions compared to 2022. Cash buyers, however, have remained resilient, with their activity exceeding the 2017-19 average by 3.5%.
Savills suggests that the housing market is in the late stages of a typical cycle, with London and the south-east expected to experience greater price falls in 2024 due to larger required deposits and increased borrowing relative to income. Conversely, Wales and the north-east are projected to see the strongest overall price growth over the next five years. London is forecasted to lead both prime and mainstream house price growth from 2028, driven by population pressures and a more robust economic outlook.
In terms of property segments, prime property in central London (top 5% to 10%) is the only market segment projected to avoid price falls in 2024. However, political uncertainty in an election year and higher taxes are expected to exert downward pressure on values. The average luxury London property, valued at £4.7 million, could potentially see a gain of £800,000 over the next five years, according to Savills.
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