House prices set to rise with North East predicted to see second highest gains
by Katie Elliott, Barbara Hodgson · ChronicleLiveAverage house prices in the UK are expected to rise by almost £15,000 next year - and a whopping £84,000 over the next five years - according to a new forecast, which also predicts the North East will see some of the highest house value increases.
With inflation returning to the 2% target and interest rates likely to decrease over the next two years, house price growth is predicted to gain momentum and resume steady year-on-year growth, reports The Express. It adds that the average UK house prices in the UK are set to rise by a staggering £84,000.
Property advisor Savills expects the typical property value - currently £358,000 - to reach £442,000 by the end of the five-year period in 2029, with on average a 4%, or £14,500, increase next year alone. And among the countrywide house price rises it predicts that northern regions will see the biggest gains.
The UK housing market is said to be still feeling the effects of the cost-of-living crisis and high mortgage rates. House prices remain 2.3% below their August 2022 peak in nominal terms but, when adjusted for inflation, they have dropped 10.5% during this period, according to Nationwide bank and the ONS ( Office for National Statistics).
With inflation now back on track, Savills forecasts an 11% rise in real house prices over the next five years, bringing inflation-adjusted prices back to pre-mini-budget levels. Lucian Cook, head of residential research at Savills, said: "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.
"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. The market will remain sensitive to short-term fluctuations in the cost of debt and changes to property taxation have the potential to cause some short-term disruption."
Regional performance is largely influenced by where we are in the housing market cycle. According to Savills, the UK housing market has been in the second half of the cycle since 2017, where the more affordable regions in the north and Scotland outperform the UK average and capacity for growth in London and the south is more limited.
But the Covid pandemic led to behaviour changes and disrupted cyclical trends. Emily Williams, director of research at Savills, now says: "Lower levels of homeworking and the need to return to commuter hotspots near major employment hubs has driven slightly stronger than expected performance in London over the last 12 months."
She expects to see some impact in 2025 of the unwinding of the ‘race for space’, bringing lower growth in the south-west and east than in the capital but beyond 2025 "affordability will have the biggest influence in every region". Here are the estate agent's regional predictions:
Price increase forecasts in percentage terms region by region
- North West, 29.4%
- North East, 28.2%
- Yorkshire and the Humber, 28.2%
- West Midlands, 26.4%
- Scotland, 25.8%
- Wales, 25.2%
- East Midlands, 24.6%
- South West, 21.6%
- East of England, 19.9%
- South East, 17.6%
- London, 17.1%
Transactions are expected to remain slightly below their pre-pandemic average over the next five years, peaking at 1,150,000 in 2028, but the estate agent warns that recovery will not be uniform. Ms Williams said: "Looking ahead we can expect some home movers to continue to hold off on moving until rates settle in 2027, when they will have also benefited from several years of house price growth to build up equity.
"As such, there is potential for a sharp rise in activity among second and third steppers in the second half of our forecast period, as pent-up demand from the period of high interest rates is released." She also suggested the number of active first-time buyers active will stay below pre-pandemic levels, due to a lack of any Government support to replace Help to Buy.
She added: "Increased regulation in the rental sector, combined with the newly-increased second-home surcharge, will further dampen demand from both cash and mortgaged buy-to-let investors." Savills’s predictions are based upon 'mainstream' house prices, covering the majority of the housing market, and a separate forecast for the prime - top 1%-2% - property market will follow in December.
It said the forecast is also based upon second-hand property prices, and new-build prices could perform differently. The research involved used data from Oxford Economics and the Nationwide Building Society.
Join our WhatsApp communities
ChronicleLive is now on WhatsApp and we want you to join our communities.
We have a number of communities to join, so you can choose which one you want to be part of and we'll send you the latest news direct to your phone. You could even join them all!
To join you need to have WhatsApp on your device. All you need to do is choose which community you want to join, click on the link and press 'join community'.
No one will be able to see who is signed up and no one can send messages except the ChronicleLive team.
We also treat our community members to special offers, promotions, and adverts from us and our partners.
If you don't like our community, you can check out any time you like. To leave our community click on the name at the top of your screen and choose 'exit group'.
If you’re curious, you can read our privacy notice.
Join the ChronicleLive Breaking News and Top Stories community
Join our Court & Crime community
Join the Things to do in Newcastle and the North East community
Join our Northumberland community
Join our County Durham community
Join our Great North Run community