The UK housing market is past its “peak pain” and looks set to bottom out in mid-2024, research by Savills has revealed.
In its latest five-year house price forecast, the property adviser projected the average UK house price to fall by 3 per cent in 2024 as affordability pressures slowly ease, with the expectation that the base rate is 4.75 per cent by the end of the year.
Additionally, less debt-dependent prime regional markets were predicted to be the first to recover, seeing a fall of just 1.5 per cent in 2024.
Savills head of residential research, Lucian Cook, said: “Interest rates are expected to have peaked and the worst of the house prices falls look to be behind us, but the first cut to rates still looks to be some way off.
“This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak to trough house price adjustment in the order of -10 per cent.
“The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand.”
Cook expects growth to accelerate as affordability pressures ease, with the strongest growth forecast for 2027 when rates reach their long-term neutral level.
“From there we expect growth to settle at a rate broadly in line with income growth,” he added.
The research also revealed that values held up slightly better than expected in 2023 as mortgage markets settled over spring and the autumn months.
Taking into account the current rate of falls, Savills forecast there will be an annual fall of 4 per cent by the end of the year, which will leave values down a total of 7 per cent since the autumn of 2022 to the end of 2023.
Prime central London
Prime central London is expected to see the least downward pressure on prices next year, given much less reliance on mortgage debt and the relative value on offer to a range of wealthy domestic and international buyers.
Prices remain 19 per cent below their 2014 peak in this sub-market, although the prospect of a general election is expected to push out the timing of a recovery.
Savills director of residential research, Frances McDonald, added: “We continue to expect prime central London to outperform most other UK residential markets over the next five years.
“With prime property values still well below historic peaks in central London, a recovery looks well overdue.
“Values are likely at or close to their nadir, though we expect the bounce to be much less aggressive than in previous cycles given a higher tax environment and greater scrutiny of sources of buyer wealth.”
Transaction expectations
Cash buyers remained the most “resilient” buyer group over the past year, with activity 3.5 per cent higher than the 2017-2019 average.
However, less activity among mortgaged buyers - particularly buy-to-let investors - means that overall transactions are expected to end this year 20 per cent down on the number recorded in 2022.
Transactions are expected to remain at around 1mn in 2024, rising to 1.16mn at the end of the forecast period, as mortgaged buyers gradually return to the market; slightly below a pre-pandemic norm of 1.2mn.
It was also reported that the UK housing market remains in the late stages of a typical housing market cycle.
According to the research, this suggests slightly greater house price falls in London and the south east in 2024 and the strongest overall price growth in Wales and the north east over the next five years.
However, having regard to evidence from previous cycles, regional price growth is expected to reach an inflection point in 2028.
From this point on, Savills stated it expects that London will once again lead price growth across the UK, driven by greater underlying population pressure, and a stronger economic outlook.
tom.dunstan@ft.com
What's your view?
Have your say in the comments section below or email us: ftadviser.newsdesk@ft.com
