Housing market is past ‘peak pain’ - Savills

The UK’s housing market is past ‘peak pain’ and looks set to bottom out in mid-2024, according to Savills.

The agency giant’s latest five-year house price forecasts suggests values have held up slightly better than expected in 2023 as mortgage markets settled over spring and autumn months. 

Taking into account the current rate of falls, Savills has forecast that annual falls will stand at 4.0% by the end of the year, which will leave values down by 7.0% since the autumn of 2022 to the end of 2023.

It predicts that prices will fall by 3% next year, with the expectation that the Bank of England base rate will stand at 4.75%. 

Less debt-dependent prime regional markets will be the first to recover, seeing falls of just 1.5% in 2024, the agent said.

Prime Central London (PCL) is expected to see the least downward pressure on prices next year, given much less reliance on mortgage debt and the relative value on offer to a range of wealthy domestic and international buyers.

Prices remain 19% below their 2014 peak although the prospect of a General Election is expected to push out the timing of a recovery. 

Cash buyers have remained the most resilient buyer group over the past year, with activity 3.5% higher than the 2017-19 average. However, less activity among mortgaged buyers – most notably buy-to-let investors – means overall transactions are expected to end this year-20% down on 2022, Savills said.

Transactions are expected to remain at around 1m in 2024, rising to 1.16m at the end of the forecast period, as mortgaged buyers gradually return to the market; slightly below a pre-pandemic norm of 1.2 million.

The UK housing market remains in the late stages of a typical housing market cycle, Savills suggests.

That suggests slightly greater house prices falls in London and the South East in 2024, where buyers continue to need bigger deposits and borrow more relative to their income, and the strongest overall price growth in Wales and the North East over the next five years

However, having regard to evidence from previous cycles, regional price growth is expected to reach an inflection point in 2028. From this point on, Savills expects that London will once again lead price growth across the UK, driven by greater underlying population pressure, and a stronger economic outlook.

Lucian Cook, head of residential research at Savills, comments: “Interest rates are expected to have peaked and the worst of the house prices falls look to be behind us, but the first cut to rates still looks to be some way off. 

“This means continued affordability pressures are likely to result in further modest house price falls over the first half of 2024, resulting in a peak to trough house price adjustment in the order of 10%.

“The expectation of a gradual reduction in rates suggests a progressive restoration of buying power and steady recovery in demand. We expect growth to accelerate as affordability pressures ease, with the strongest growth forecast for 2027 when rates reach their long-term neutral level. From there we expect growth to settle at a rate broadly in line with income growth.”