House price growth is set to undergo a dramatic slowdown over the next five years as the market suffers a double blow from Brexit and interest rate hikes, according to Savills.
The estate agent has forecast UK house price growth to average just 14 per cent up to 2022 – around half the growth figure witnessed during the past five years.
Uncertainty over Brexit is set to dampen market sentiment, before rising interest rates put added pressure on demand, Savills claimed.
As London and the south-east continue to suffer anaemic growth, Savills stated the focus will shift to growing markets in the north of England.
According to Savills, Greater London is set to see a 2 per cent drop in prices in 2018, with growth averaging just 7.1 per cent up to 2022.
With first time-buyer deposits now 3.9 times the UK average, at £99,753, the city’s mainstream market is particularly stretched - although the capital’s prime central market is set for robust growth of 20.3 per cent.
Lawrence Bowles, Savills research analyst, said: “London’s housing market has been pushing up against the limits of mortgage regulation and affordability for some time.
“The Brexit vote was the tipping point that slowed price growth. Weakened sentiment combined with expected interest rate rises now point to small, short-term price falls next year.”
In contrast, growth is set to average 18.1 per cent in the north west thanks to a robust economic outlook and strong employment growth centred on Manchester.
The north east (17.6 per cent), Yorkshire and Humberside (17.6 per cent), and Scotland (17 per cent) are also forecast to see solid growth.
Total transactions in the UK housing market are expected to dip before gradually returning to around 1.2m by the end of the five-year forecast period - still around half a million below their pre-credit crunch level.
First-time buyers will remain heavily reliant on the Bank of Mum and Dad or government initiatives such as Help to Buy as people move up the housing ladder less frequently.
Pummelled by a wave of tax and regulatory changes, the number of buy-to-let investors is set for a dramatic 27 per cent drop from 75,000 to 55,000 over the next five years.
Lucian Cook, Savills head of residential research, said: “We have seen the earliest signs that some mortgaged buy to let investors may be selling stock. Those entering the market will be looking very carefully at yields and that will put the spotlight on urban markets outside the capital.”
Rents are forecast to rise in line with incomes, averaging 17 per cent in London and 15.5 per cent in the UK as a whole.
Anthony Rushworth, founder of housebuilding investment platform Homegrown, said: “This is an unprecedented forecast that will alarm many, but it’s good news for first-time buyers.
“We know the market has been slowing significantly this year, and has fallen recently in London, but such anaemic overall growth, if correct, would provoke huge changes in our housing market as capital gains begin to trail inflation forecasts by some margin.
“One effect may be to create massive sell-side pressure as more landlords sell up. They would undoubtedly be intimidated by years of weakened returns, on top of potential higher tax charges.
“The main risk to the UK in these circumstances is that housebuilders stop creating desperately-needed new stock, as the gross development value of schemes starts to fall alongside tightening lending. Although there has already been signs of a correction in land prices in recent months.
“The government’s challenge in these circumstances will be to ensure this vicious boom-and-bust cycle of housebuilding is broken and residential development continues apace.”
simon.allin@ft.com
