Savills issues gloomy house price forecast for next year

House prices are set to fall 1.5% next year Savills predicts, with the property market’s struggles set to continue for another 12 months.

The estate agency warns that “prolonged conflict in the Middle East weighs on sentiment and keeps mortgage rates higher for longer”.

The Bank of England has just raised the Bank Rate to 4%, and Savills forecasts average mortgage rates are now not expected to fall below 5% until early 2028.

As a result, the company expects house prices to continue falling this year and through 2027, resulting in a total peak-to-trough decline of around 3%.

Suppress activity

Emily Williams, Director of Residential Research at Savills (pictured), says: “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.

“But this is unlikely to trigger a sharper correction. Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.

“Together, these factors should keep forced sales low and limit further downward pressure on prices.”

Accelerate

Savills says things will look up in 2028, with average house prices to rise by 15.8% or £56,500 in the five years to 2031.

House prices are expected to accelerate during the second half of 2028, according to Savills, reaching 3.5% for the year. Growth is then forecast to reach 5% in both 2029 and 2030.

Connells predicted earlier this week that house prices will rise by just 1.5% next year, but will pick up as borrowing costs ease in 2028.