UK House Price Predictions For Next 5 Years
Since the COVID-19 pandemic, housing prices have risen steadily in many countries. However, house price predictions are expected to slow as mortgage rates rise and living costs increase. This could affect buyers who are looking to buy property in the UK. But will prices crash?
| Causes of fluctuation in house prices |
- Lax mortgage lending
- Rising wages
- Falling unemployment
- Supply being low
- Demand being high
- The availability of cheap credit
|
- High unemployment
- Low economic growth
- Reduced availability of affordable mortgages
- An increased supply
- A decreased demand
- Low rental charges
|
Who Can Help Predict UK House Prices?
- Economic Forecasts: Leading financial institutions and economic analysts often provide forecasts for the housing market as part of their economic outlook reports. These forecasts consider factors like interest rates, inflation, and economic growth.
- Housing Market Reports: Organisations like the Royal Institution of Chartered Surveyors (RICS) and property market analysts regularly release reports and market insights, including short- and long-term housing market predictions.
- Government Publications: Keep an eye on government publications and policies related to housing, as changes in regulations and initiatives can impact the housing market.
- Property Research Firms: Consult property research firms specialising in housing market analysis. They often provide in-depth reports and predictions based on extensive data analysis.
- Local Experts: Local estate agents and property experts can provide insights into regional housing market trends and predictions, which can vary widely across the UK.
What Influences House Prices?
House prices in the UK, like in many other countries, are influenced by a complex interplay of various factors. These factors can impact both short-term fluctuations and long-term trends in the housing market. Some of the critical factors that influence changing house prices in the UK include:
- The overall health of the economy plays a significant role. Economic growth, employment, inflation, and interest rates can impact housing demand and affordability. Low-interest rates, for example, can make mortgages more accessible and increase demand for homes.
- The balance between the supply of homes and the demand from buyers is a fundamental driver of house prices. A shortage of available properties relative to demand tends to push prices upward, while an oversupply can lead to price stagnation or declines.
- The location of a property is a critical factor. Desirable areas with good amenities, schools, transport links, and job opportunities tend to have higher property prices. Local factors like urbanisation and regeneration projects can also influence prices.
- Government policies and initiatives can have a significant impact. For example, changes in property taxes, housing subsidies, and planning and development regulations can influence demand and supply.
- Mortgage interest rates set by central banks can affect borrowing costs for homebuyers. Lower interest rates generally stimulate demand for property, while higher rates can cool the market.
- Population growth, household composition changes, and urbanisation trends can affect housing demand. For example, an ageing population or an influx of young professionals can influence the types of properties in demand.
- Consumer sentiment and confidence in the housing market can influence buying decisions. Positive economic news and stability often increase confidence and activity in the property market.
- Perception and sentiment within the property market itself can have an impact. Speculative bubbles or market downturns can be driven by sentiment, sometimes disconnected from fundamental economic factors.
- Global events and economic conditions can also play a role. Events such as financial crises, geopolitical tensions, and international economic trends can have ripple effects on the UK housing market.
- Housing markets often move in cycles, including boom periods, stabilisation, and corrections. Understanding where the market is in the cycle can provide insights into future price trends.
It’s important to note that these factors interact in complex ways, and their influence can vary by region and over time. Additionally, unforeseen events, such as the global financial crisis or the COVID-19 pandemic, can disrupt normal market dynamics.
London
- Buying a home in the UK is still a popular investment option for many people.
- However, the price of homes can vary greatly depending on where you live.
- As mortgage rates increase, people will have less buying power and may be unable to afford a home.
- This will affect the market and cause prices to fall, however, there are some areas where house prices are expected to rise.
- These include London and other urban areas with good schools, jobs, and green spaces. These areas will attract investors.
East of England
- As mortgage rates increase and affordability pressures intensify, Savills has released new five-year house price forecasts for both mainstream and prime markets.
- The firm believes mainstream markets will see prices fall by around 6% in 2023 before rising by 17% between 2024 and 2027.
- But many buyers are likely to have fixed-rate mortgages, protecting them from sharp increases in monthly repayments.
- This will prevent them from having to sell up and could help prices stabilise. However, this could lead to a significant slowdown in overall growth.
East Midlands
- The property market is set to slow this year as interest rates rise, putting pressure on affordability.
- According to experts, this is especially true for first-time buyers who may need help to raise the necessary deposit.
- In contrast, prime regional markets are expected to buck the trend.
- This is because they rely less on mortgage debt than mainstream markets, making them less sensitive to rate increases.
- However, they are not immune to affordability concerns either.
- According to experts, this could lead to some price falls (especially in London).
West Midlands
- With mortgage rates expected to rise, affordability will come under pressure for buyers.
- This is particularly true in regions like the Midlands and Northern cities with lower incomes and more mortgaged households.
- However, despite these broader trends, some cities are set to perform far better.
- Birmingham, for example, should see prices rise by almost 19% between 2023 and 2027.
- This makes it an excellent option for first-time buyers and buy-to-let investors.
- This is primarily due to its strong jobs market.
- Many employers offer flexible working hours, so more people are moving to this area.
South East
- The UK housing market is expected to grow across most regions over the next five years.
- But some areas will see more robust growth than others.
- According to Zoopla, people are moving away from expensive markets like central London and looking for more affordable areas.
- Higher mortgage rates mean it will be harder for potential first-time buyers to afford a home.
- But as demand slows, mortgage rates should fall, and properties will become more affordable.
- But the long-term outlook for the property market remains to be determined.
South West
- The UK housing market is a series of local markets so price changes will have more impact in some places than others. This is particularly true when it comes to interest rates.
- Estate agency Savills expects prices to rise in the South West this year but fall next as mortgage rates increase.
- Ultimately, this will dampen buying power, especially in areas with a high average house price.
- Buyers prioritise rural and coastal locations that offer good connectivity and value for money
- These areas will see the most robust growth in 2023.
North East
- After a surge during the COVID-19 pandemic, interest in countryside and commuter locations has slowed.
- This is due to higher mortgage rates and cost of living pressures.
- Those who have saved a deposit are upgrading their rental properties into more prominent, better homes.
- This is helping to keep prices buoyant.
- As borrowing costs rise, the market will diverge between the mortgage-dependent mainstream markets and the prime sectors where wealth is concentrated, says Savills.
- This is expected to result in the North East outperforming London over the forecast period.
North West
- Following a rise in prices during the Covid-19 pandemic, house price growth is expected to stall in 2023.
- Every month, the North West has remained more resilient than other regions in England.
- With mortgage rates rising, it is unlikely that property demand will continue to be so high.
- This could lead to a drop in house prices across the UK.
- However, this will be more acute in the capital than in other areas.
- The North-South divide is expected to flip, with the North seeing high growth and London experiencing stunted performance.
Wales
- A desire for greenery and space has led many buyers to seek out rural and coastal properties during the COVID-19 pandemic.
- This demand will likely continue, but the pace of growth will slow as affordability pressures increase.
- High mortgage rates have made saving for a deposit more difficult.
- And with many homeowners coming to the end of fixed-rate deals, they will likely face a rise in their monthly repayments.
- This could lead to fewer home sales, which will reduce prices.
- However, new mortgage support systems should help limit the effect on affordability.
Scotland
- According to Oxford Economics, Scotland’s slower rate of wage growth will limit mortgage affordability and dampen overall demand.
- However, prime markets (broadly the top 5%-10% by value in each region) will be less sensitive.
- The East of England could see above-average growth, while the West Midlands and South East are expected to see average increases.
- Meanwhile, the rental market will see a 17.1% cumulative increase over the next five years.
- This breaks down to 4% in 2022, 3.5% in 2023 and 3% in 2024 and 2025.
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