House prices over the next five years are forecast to rise at half the rate of the past five years, according to Savills’ Residential Property Forecasts.
The report predicts 14% house price growth in the UK between 2018 and 2022.
The firm expects the market to struggle next year amid Brexit uncertainty and recover in 2019 as the terms of the UK’s exit from the EU become clearer. Towards the end of the five-year period, it forecasts that interest rate increases will cause the market to cool again.
“Brexit uncertainty is expected to dampen the market until negotiations have taken place and we exit the EU in 2019,” says Lucian Cook, director of residential research at Savills.
“By 2020, we will understand how the Brexit transitional arrangements are likely to work and we predict there will be a degree of pent-up demand coming back into the market.
“But as higher interest rates feed through to mortgage lenders’ affordability tests in 2021, people will be held back on the amount they can afford to borrow to purchase a property.”
Savills is also forecasting that price growth will be highest in areas of the country where housing is most affordable. The North West market is expected to perform particularly well. House prices in the region sit at a modest multiple of 5.6 times average incomes compared with 12.9 times in London.
The region also boasts a strong outlook for economic and employment growth, Savills adds.
The fact we have less house price growth gives us a little more stability and sustainability in the market - Lucian Cook, Savills
As a result, the firm is predicting 18% price growth in the North West, more than double the 7% growth expected in London.
Cook adds that relatively low levels of house price growth over the coming years will not necessarily be bad for the long-term health of the market.
“The fact we have less house price growth gives us a little more stability and sustainability in the market,” he says.
“In the past, rapid growth has acted as a double-edged sword. It makes people feel rich when their home increases in value, but they have to find twice the size of the deposit to move up the ladder.”