Average property prices in UK sent to rise by 14% over next five years, just 7.1% in London

UK house price growth is expected to slow next year as uncertainty weighs on sentiment, but will pick up again in 2019 and 2020, according to the latest forecast, reaching 14% over the five years.

Real estate firm Savills is forecast growth of 14% from 2018 to 2022 but this growth assumes that employment, wage and GDP growth swing back towards trend levels, and it could also be affected by the first interest rate rise for a decade.

The forecast is based on the assumption that the Bank of England base rate will reach 2.25% by 2022 and average mortgage rates reach 4% over the next five years.

But there will be considerable regional variation from growth of 18% in the North West of England to just 7% in London over this period, although the firm adds that London’s prime markets will show stronger growth. Prime central London could see growth or 20.3% and outer prime London growth of 10.2%.

Total sales are expected to dip before gradually returning to around 1.2 million by the end of the five year forecast period but still around half a million below their pre credit crunch level.

A breakdown of the forecast figures show mainstream property prices rising on average by 2% over 2017, by 1% in 2018, by 2.5% in 2019, by 5% in 2020, by 2.5% in 2021 and by 2.5% by 2022.

In Scotland the forecast is for a rise of 2.5% this year, falling to 1.5% in 2018, rising to 3.5% in 2019, 5% in 2020 and then 3% in 2021 and 2022, a cumulative rise of 17.6%, more than the UK average of 14.2%.

For Wales the forecast is for a rise of 2.5% this year, 1% next year, 3% in 2019, 5% in 2020, and then 3% in 2021 and 2022, adding up to 15.9%, also higher than the national average.

The poorest forecast is for Greater London with a rise of 1.5% this year, but a fall of 2% in 2018 before remaining flat in 2019, the soaring by 5% in 2020 before falling back to growth of 2% in 2021 and 2022, taking the five year total to 7.1%.

‘Uncertainty over what Brexit means for the UK economy and how it will impact household finances will increasingly act as a drag on house prices,’ said Lucian Cook, Savills head of residential research.

‘There is capacity for growth once we have greater clarity, but this will be constrained by rate rises and the corresponding ability to get mortgage debt, particularly in London and other higher value locations,’ he explained.

‘Mortgage regulation, introduced in 2014, is likely to show its hand as interest rates rise. But by restricting the amount people can borrow, it will take the heat out of the market and so reduce risk now and in the future,’ he added.

Rents will keep pace with wage growth, with London showing the biggest rise of around 17%, exceeding price growth, with landlords expected to focus on their yields and thus looking increasingly at urban locations outside of London.

The report explains that in London, average house prices at £479,100 in August 2017, according to the Land Registry, were 12.9 times the average individual’s earnings and the market has therefore become increasingly accessible only to more affluent, dual income households, which will restrict potential future growth in the capital, and in turn act as a drag on its commuter belt.

Beyond the Home Counties, house prices have risen more in line with incomes, leaving affordability far less stretched. For example, the house price to income ratio in the North West is a much more modest 5.6. Coupled with a robust economic outlook and strong employment growth centred on Manchester will underpin the region’s housing market, according to the report.

It also explains that in London it is the mainstream market that looks particularly stretched. First time buyer deposits are now 3.9 times the UK average at £99,753, the average stamp duty bill at £25,703, is 3.1 times that paid across England, and the average mortgaged home mover household income is £91,329, 66 per cent higher than across the UK as a whole.

‘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,’ said Lawrence Bowles, Savills research analyst. .

‘Greater economic and political certainty should trigger a return to growth in 2020, though this will be capped by borrowing constraints as gradual increases in the cost of mortgage debt impinge on affordability,’ he added.

Savills also forecasts that new buy to let buyers could fall by 27% to just 55,000 by the end of 2022 as tighter mortgage regulations, increased stamp duty charges and the phasing out of mortgage interest relief combine to restrict buy to let investor activity.

‘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,’ said Cook.

Cash buyers likely to remain the largest group. They now account for some 34% of all house purchases and 45% of the total value of transactions. It says that first time buyers will remain heavily reliant on the Bank of Mum and Dad or Government initiatives such as Help to Buy.