Savills has forecast a 1.5% decline in UK house prices for next year, citing prolonged geopolitical tensions and persistently high mortgage rates as key factors weighing on the market.
The estate agency’s latest outlook suggests mortgage rates will remain elevated, with average rates not expected to fall below 5% until early 2028. This follows the Bank of England’s recent decision to raise the base rate to 4%, with Middle East conflicts cited as a factor maintaining pressure on borrowing costs.
Peak-to-trough decline expected
The forecast indicates house prices will continue to decline through 2027, resulting in a total peak-to-trough fall of approximately 3%. However, Savills does not anticipate a sharp market correction.
Emily Williams, Director of Residential Research at Savills, said: “The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage-rate relief, which will weigh on buyer sentiment and affordability. We expect this will suppress activity and put pressure on prices next year.”
Williams noted that most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance from rates below 2%. Combined with a resilient labour market, these factors are expected to keep forced sales low and limit further downward pressure on prices.
Recovery anticipated from 2028
Savills projects a recovery beginning in 2028, with average house prices forecast to rise by 15.8% or £56,500 over the five years to 2031. Growth is expected to accelerate during the second half of 2028, reaching 3.5% for the year, before hitting 5% in both 2029 and 2030.
The forecast contrasts with other market predictions. Connells earlier this week projected a 1.5% price increase for next year, though both firms anticipate improved conditions as borrowing costs ease in 2028.
The divergent forecasts reflect ongoing uncertainty about the trajectory of interest rates and their impact on housing affordability and market activity in the near term.
