House prices are forecast to grow by more than 23% on average over the next five years, with homeowners in the North seeing the greatest rise.
Following consistent year-on-year growth powered by improved affordability, Savills forecasts that by 2029, the value of the average home will have risen by £84,000.
The estate agent predicts house prices will rise by 4% next year, 5.5% in 2026 and then 5%, 4% and 3% in the following three years, leading to 23.4% growth in total.
Alongside its predictions for house price rises, Savills forecasts that the Bank of England base rate will fall to 4.75% by the end of this year and 3.75% by the end of 2025. By the end of 2026, Savills forecasts that the base rate will be 2.75% before falling further to 2% by the end of 2027, where it is estimated to remain until 2029.
Lucian Cook, head of residential research at Savills, said: “With less external noise, house prices in the medium term will be dictated by the fundamentals of demand, supply and affordability.
“The direction of mortgage rates has been key to buyer decisions over the past two years and decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.
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“A steady improvement in affordability should allow for house price growth to gain momentum over the next couple of years. But there is still some potential for a bumpy ride. The market will remain sensitive to short-term fluctuations in the cost of debt and changes to property taxation have the potential to cause some short-term disruption.”
Regional differences
Unwinding pandemic trends are expected to soften growth in the South West and East of England below that of the capital.
Conversely, markets in the North – where mortgaged buyers are under less financial strain – are expected to see the strongest acceleration in house price growth, estimated to be between 28% and 29% by 2029.
Homeowners in the North West are predicted to see the biggest growth in the value of their homes, with a 29.4% rise by 2029. In the North East and Yorkshire and the Humber, house prices are forecast to rise by 28.2% and 26.4% respectively.
Trailing the UK’s regions are the South East, with 17.6% growth, and London, with 17.1% growth.
Transactions to peak in 2028
The number of purchases is expected to remain slightly below its pre-pandemic average over the next five years, peaking at 1,150,000 in 2028.
Homemovers, according to Savills, will drive housing market activity once mortgage rates have settled.
First-time buyer activity is expected to take longer to recover due to a lack of government support, while action from cash and mortgaged buy-to-let (BTL) investors is expected to be subdued due to greater regulation in the private rented sector (PRS) and the recent increase to the stamp duty surcharge from 3% to 5% announced in the Budget.
