London is expected to see slower than average house price growth over the next five years, new data from Savills has revealed.
Whereas the average UK property is expected to see a 22 per cent rise in value by 2030, homes in London will see a more modest boost of just 13.6 per cent.
With a typical London property currently valued at £683,707, this is equivalent to a £93,191 price rise over five years. Nationwide, the average property is projected to cost £79,930 more than it does now (£359,875).
The Savills forecast suggests that more expensive areas, like London, will see slower house price growth over the next five years than areas where homes are currently more affordable.
The South East and East of England, for example, are both expected to see lower than average house price growth, at 17 and 19.3 per cent respectively.
Properties in Yorkshire and The Humber and the North East of England, though, are predicted to see the biggest percentage price increases over the next five years of anywhere in the country, at 28.8 per cent.
Scotland, Wales and the North West are also anticipated to see above average price rises, all at 27.6 per cent.
These regional differences in house price growth over the next five years are anticipated to have an equalising effect on property values around the country, said Savills.
By 2030, values in the North West, for example, are expected to sit at just 15 per cent below the UK average; in 2020, they were almost 30 per cent lower.
And in London, prices are set to be 33 per cent above average in five years, whereas they were 70 per cent higher in 2017.
“Regional performance is largely influenced by where we are in the housing market cycle, said Dan Hill, research analyst at Savills.
“Since 2016, we’ve been in the second half of the cycle, 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.
“In the absence of any whole market price correction, this pattern is likely to persist for the next five years, with the strongest growth shifting to late-stage markets in the North East, Scotland and Wales.”
How will the Budget impact house prices?
The housing market has been more subdued this year, due in part to concerns about the economy and tax environment, said Savills. There has been speculation about changes to stamp duty, the introduction of a mansion tax and other tax rises — all of which have encouraged buyers and sellers to hold off.
The autumn Budget, which will provide some answers to these questions, will take place on 26 November.
“We’re also seeing a two-speed market emerge among buyers. Those who need to move are pressing ahead but negotiating hard to de-risk themselves from any tax changes that may lurk in [the] Budget,” Jonathan Hopper, chief executive of Garrington Property Finders said in October when the Office for National Statistics published its most recent house price index.
“Meanwhile discretionary movers —especially those looking at higher price points— are adopting a wait-and-see approach,” explained Hopper.. “They’re unlikely to take their finger off the pause button until after the Budget, so the prime property market may remain in suspended animation until the new year.”
According to Savills’ figures, house price growth is expected to remain constrained until 2027, at one per cent this year and two per cent the next. Values will grow in real terms from 2028 onwards, for the first time since 2022.
In London, no growth is projected until 2027, and then only at two per cent.
“Our previous forecast assumed falling interest rates would boost borrowing and investment, supporting house price growth. However, with inflation stuck at 3.8 per cent, economists are less confident about the pace in which rate cuts will happen,” said Lucian Cook, head of residential research at Savills.
“Higher interest and mortgage rates next year, as well a weaker labour market, with a slight rise in unemployment and slowing wage growth, are likely to constrain price growth.
“The upcoming Budget also continues to weigh on the market, although we expect any announcements to have a much greater impact on prime values and transactions than the mainstream market.
“Direct changes to transactional taxes could alter the incentives that currently shape buyers’ housing decisions, while broader tax increases on certain population segments could reduce some prospective buyers’ capacity to finance home purchases.
“Ultimately, however, the biggest influence on the mainstream market will come from how financial markets react to the Budget itself.”
Looking forwards
Over the next five years, increased affordability — due to lower mortgage rates and prices — is likely to drive transactions close to pre-pandemic levels.
In particular, first-time buyers have seen their purchasing power grow. Last month, for example, Barclays said that the share of first-time buyers purchasing properties for over £300,000 had increased, while average mortgage rates dipped back below five per cent this month.
First-time buyers are the only buyer group with activity significantly above pre-pandemic levels.
Slower price growth for flats is limiting second steppers from moving upwards on the property ladder, said Savills, but as rates fall, this should start to change.
“Housing is technically more accessible now than at any point in the last three years, thanks to lower mortgage rates, lower real house prices and looser mortgage regulation,” said Emily Williams, director of research at Savills.
“But none of this matters unless buyers feel confident enough to commit — and weaker sentiment is holding back transactions.”
