Over the next two years the UK housing market will remain shackled by economic and political uncertainty.
In the longer term, there appears to be stronger prospects for house price and transaction growth, but any increase in activity will be tempered by interest rate rises. Also, despite the government’s focus on housing in the Autumn Budget, it is not expected that the new policies will have much impact on the housing market in the near term.
House price growth over the next five years will be half the level seen during the past five years – which is not entirely a bad thing. While it means less accumulated equity for those lucky enough to own property, it also gives aspiring home owners a chance for their earnings and savings to grow in an attempt to catch up.
Savills forecasts that house prices will grow by just 1 per cent in 2018 (see chart), as political and economic uncertainty continues to boost buyer caution. There’s then scope for growth to increase to 2.5 per cent in 2019, while at 5 per cent growth, the strongest year of the forecast is 2020.
By this point, the core assumption is that there will be more certainty in the market as we start to understand what the UK’s new relationship with the European Union (EU) looks like. After years of subdued activity, this could prompt property owners who were previously on the fence about selling up, increasing activity in the market and helping to push up prices.
That strong growth will not last forever, with the Bank of England likely to raise interest rates over the next few years. By 2021 and 2022, those increased borrowing costs will limit mortgage availability, putting a cap on price growth. Savills forecast for each of those years is 2.5 per cent. There’s plenty of deviation from the UK averages depending on where in the country you look. On the one hand, housing affordability in London is stretched to record levels.
UK house price growth
2018 | 2019 | 2020 | 2021 | 2022 | 5 year |
1.0% | 2.5% | 5.0% | 2.5% | 2.5% | 14.2% |
Source: Savills
The prospects for growth there are weak, which is why it is expected that prices in the region will grow by just 7.1 per cent over the next five years.
On the other hand, whenever London has been the slowest growing area, the north has been the fastest. Housing in the northwest of England is relatively affordable, and the region is insulated from Brexit uncertainty by its more domestically focused economy. Hence the northwest has been put at the top of the regional forecast tables, with 18.1 per cent growth by 2022.
Uncertainty to hit sales
Savills forecasts the number of house sales will reach 1.2 million in 2017, although that number is likely to dip in the short term as uncertainty continues. But it will recover once we start to see signs of price growth. While the total number of homes bought in 2022 is expected to look much like today’s figures, different kinds of people will be buying them. We could see mortgaged, first-time buyers take up a greater share of the market over the next five years.
