HOUSE PRICE ANALYSIS: It’s looking up!
Although we are still waiting for some property market forecasts to come in, Kate Faulkner says the summary is looking good.
The latest five-year forecasts from Savills and JLL and four-year from Hamptons are, at the moment, ‘looking good’!
That assumes of course that we continue with a relatively stable economy, which should be possible post-budget, but it’s likely to be international issues that influence most what happens next year. Things like the impact of a ‘new’ American president as well as what happens in the horrendous wars we are witnessing.
There was a hope that base rates would fall again in December, but with current statistics and Andrew Bailey, Bank of England Governor, saying that rates will “continue to fall gradually from here” and indeed the fact that the property market is doing well, predictions suggest we’ll be unlikely to get another fall prior to Christmas.
What’s next? Thoughts on the latest indices
“Providing the economy continues to recover steadily, as we expect, housing market activity is likely to continue to strengthen gradually as affordability constraints ease through a combination of modestly lower interest rates and earnings outpacing house price growth.”
“Looking ahead, borrowing constraints remain a challenge for many buyers. Following the budget, markets expect the Bank of England to cut rates more slowly than previously anticipated, which could keep mortgage costs higher for longer. New policies like higher stamp duty for second home buyers and a return to previous thresholds for first-time buyers might also affect demand.
“While we expect house prices to keep growing, it will likely be at a modest pace for the rest of this year and into next.”
“The housing market is adjusting to the step change in mortgage rates over the last 2 years. It is positive to see more sales activity, which reflects growing confidence amongst buyers and sellers, supported by rising incomes and mortgage rates in the lower 4% range.
Wage growth will have to do the hard work supporting affordability and buying power.”
“Our assumption remains that mortgage rates will remain close to current levels c4%-4.5% over 2025. This means wage growth will have to do the hard work supporting affordability and buying power with house price growth likely to remain modest. The market remains on track for a modest 2% price increase in 2024, with sales of 1.1m.”
“We are forecasting UK values to grow by 4% in 2025, and by 23.4% over the next five years. Growth will be supported by steady cuts to the base rate over the next two years, which will improve affordability.
“The strongest performing regions are expected to be the North of England and Scotland. We are forecasting 5 year growth of almost 30% for the North West, the strongest region. London is expected to continue to be the weakest growing region, as it is most constrained by affordability, but we have increased our 5 year figure from 14.2% last year to 17.1%.
The stamp duty changes announced in the Budget will result in muted activity from Buy to Let investors and to a lesser extent amongst cash buyers.”
“Transaction volumes are expected to gradually increase, with first time buyers leading the recovery. The stamp duty changes announced in the Budget will result in muted activity from Buy to Let investors and to a lesser extent amongst cash buyers. We expect annual transactions to reach 1.15 million by 2028, slightly below the 2017-19 average of 1.2 million.
“Following several years of strong growth, rents are expected to reach an affordability ceiling. By the second half of our forecast period we think rental growth will fall back to be in line with income growth, resulting in a five-year figure of 17.6%.”
“A new government with ambitious plans for housebuilding and more comfortable with a higher tax environment, particularly for wealthier households, could mean future growth prospects differ from the recent past. But neither of the these seem a sufficient departure from the current trend to meaningfully change the path of growth over the coming five-year period (2025-2029).
“We do expect higher rates (even if they fall back from current levels) will limit growth prospects, meaning our 2025-2029 forecasts sit at the lower end of the recent five year averages.
“We expect growth of 19.9% nationally 2025-2029. London house prices are expected to increase by 21.6% over the same period, underpinned by a lack of new homes reaching the market for sale. We expect lower value markets to see stronger growth towards the beginning of our five-year forecast period, with more expensive markets outperforming once the rate cutting cycle continues into 2026 and 2027.”
New housing cycle
“The downward trend in rates next year should boost prices and sales – which is the main reason why our forecast of 3.0% price growth across Great Britain remains unchanged. We are also maintaining our forecast of a bounce in transactions which should near 1.2m, a rise of 9% over 2024. The lower cost of borrowing and improved affordability will support prices and sales. But property values will be constrained by higher taxation and the weak economic backdrop.
“We argue that 2025 is likely to mark the beginning of a new housing cycle, with prices in London pulling further ahead of other regions. As a consequence of this trend, we forecast an average property value gain of 4.0% in the capital, meaning prices in the capital surpass their previous pre-mini Budget peak. But, in contrast with previous cycles (like the last one which started in 2008) tax increases mean that areas outside Prime Central London (PCL) will be the strongest performers. PCL’s recovery will be delayed as buyers and sellers take stock of the revised rules for non-doms and the new capital gains and inheritance tax regime.”
