House prices will rise in the next five years, predicts Savills

by · Mail Online

House prices are set to rise by £84,000 on average over the next five years, due to lower interest rates and improved affordability.

A huge 23.4 per cent growth in the UK housing market is expected by 2029, according to estate agent Savills.

Properties in the north of England - where prices are more affordable - are set to see the biggest growth. Prices in the northwest are set to see a 29.4 per cent boost in the five years to 2029 while homes in the northeast could rise by 28.2 per cent.

Properties in London and the southeast are likely to see the lowest price increases as costs are already so high.

The overall price rise across the UK is the equivalent of an increase of 11 per cent in real terms once adjusted for inflation.

A huge 23.4 per cent growth in the UK housing market is expected by 2029, according to estate agent Savills. The north will see the biggest growth and the south east will see the slowest 
Homes in Muswell Hill, North London. Properties London and southeast markets are likely to see the lowest price increases as costs are already so high

Borrowers have been punished by higher interest rates over the last two years.

Mortgage rates reached an average peak of 6.86 per cent for a two-year fix on July 26, 2023, according to rates scrutineer MoneyfactsCompare.

Buyer confidence plummeted as borrowing costs hit punishing levels, stifling the housing market.

But improved inflation figures and the Bank of England’s 0.25 percentage point cut to the base rate in August has caused some lenders to slash their deals, offering some light at the end of the tunnel for beleaguered borrowers.

Inflation has fallen back to below the 2 per cent target, which has already improved buyer confidence and injected movement into the housing market, according to Savills.

Lucian Cook, of Savills, 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. Decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers.’

Homes in Manchester. Properties in the north of England - where prices are more affordable - are set to see the biggest growth
Rachel Reeves last week unveiled an additional two percent surcharge on stamp duty rates for second homeowners, including landlords

Swap rates - which lenders use to price deals and mitigate lending risk - ticked up slightly last week as Chancellor Rachel Reeves’ maiden Budget spooked the markets.

This prompted some lenders, including HSBC and Coventry Building Society, to reprice their deals upwards.

The average two-year fix now at 5.39 per cent, according to rates scrutineer MoneyfactsCompare.

Expectations of two interest cuts before the end of the year have been squashed but brokers still expect an overall downward trend for rates.

Nicholas Mendes, of broker John Charcoal expects the lowest fixed rates to stabilise around the low 3 per cent range next year.

The first-time buyer market is likely to remain stagnant for some time due to a lack of government support, Savills expects.

Plus, demand in the buy-to-let sector is also likely to dampen due to tightened regulation and further stamp duty charges.

Ms Reeves last week unveiled an additional 2 pc surcharge on stamp duty rates for second homeowners, including landlords.

They will now need to stump up 5 pc on top of standard stamp duty rates, which experts say is likely to lead landlords to stop investment.

Brokers saw clients pull out of deals within a matter of hours following Ms Reeves’s announcement as they needed to find thousands of extra pounds to complete purchases.

Thresholds are set to fall back in the spring after the Exchequer failed to extend the stamp duty holiday buyers have been enjoying since 2022, compounding pain for landlords.