Transactions and prices to boom over next five years - forecast

Transactions and house price forecasts for the mainstream housing market are being revised upwards by Savills following the Budget.

The new predictions follow an unexpectedly strong market in 2020, which Savills says was the first time in modern history that house prices rose in a recession. 

After a 7.3 per cent mainstream housing market price rise in 2020, Savills now forecasts: a 4.0 per cent rise in 2021, followed bye 5.0 per cent in 2022, then 4.0 per cent again in 2023, then 3.5 per cent in 2024 and finally 3.0 per cent in 2025.

That means the average price of a UK home, currently at £230,920, will soar to £279,644 after five years. 

So the five year forecast to 2025 sees mainstream house prices rising an average 21.1 per cent, at least partly thanks to the extended stamp duty holiday and the continuance of the furlough scheme.

Transactions hit around 1.05m in 2020 and Savills forecasts substantial rises on that figure in the years to come. It predicts 1.4m in 2021, then 1.25m in 2022 and 1.2m for each of the following three years. 

The agency also looks at the wider economic outlook and on interest rates it anticipates a low-interest long-term future, even though base rate will rise marginally from its current 0.1 per cent to 0.5 per cent by 2025.

“By extending both the stamp duty holiday and the furlough scheme in last week’s Budget, the Chancellor has significantly reduced the downside risks in the [2021] mid-year, while a recovering economy should support price growth towards the year end” explains Lucian Cook, Savills head of residential research.  

“The expectation that interest rates will stay lower for much longer than was predicted pre-pandemic, means there remains capacity for medium-term house price growth despite the unexpectedly strong performance of last year.  Across the country as a whole five-year price growth of around 20 per cent looks sustainable without unduly depleting mortgage affordability” Cook anticipates.

While the demand for more space has meant regional house price growth has been relatively even across most of the UK, from 2022 Savills expects to see a return to the pattern of growth that would normally be expected at this stage in the housing market cycle.  

That indicates stronger price growth in markets further from London, where lower house price to household income ratios leave more capacity for increases.