UK house prices to remain subdued over next five years, says Savills

Biggest increases are forecast for south-east and east of England, but rest of the country will only see modest price growth

UK house pricesHouse prices in the south-east and east of England will jump by more than a fifth over the next five years, as growth ripples out of London into the capital’s hinterland, but will remain subdued in much of the rest of the UK, according to estate agency Savills.

Savills predicts that the average UK house price will rise by 5% next year, but then slip back to 2.5%-3% a year until 2020, as tighter mortgage criteria and rising interest rates hold back home buyers. Its figures suggest that the average UK home will go up in price from £205,000 today to around £240,000 in 2020.

But its lukewarm forecast contrasts with monthly data from Halifax, which revealed that prices jumped by 1.1% in October alone, with the annual pace of growth hitting 9.7%, up from 8.6% in September.

In its longer-term forecast, Savills said that “any combination of house price growth or high mortgage rates could leave affordability looking stretched”. It predicts 21.6% growth in the south-east and 21% in the east of England, compared with just 15.3% in London and 12% in the north-east. In many parts of the country, such as the north-west, house price gains will be little more than expected rises in earnings and inflation.

UK home prices chartCentral London prices will be little more than flat this year, said Savills, with stamp duty increases already pushing them down by 4.7% in top-end properties over the past year. The London market “currently looks fully valued and fully taxed” Savills added. It said areas such as Camden and Islington can expect muted price rises, but named Lewisham and Walthamstow as the parts of the capital most likely to show strong growth over the next five years.

Savills is regarded as the most authoritative forecaster on Britain’s property market after successfully predicting both the 2007-09 downturn and the remarkable bounce back since.

In 2008, it forecast price falls of 15% in 2009, followed by a recovery between 2010 and 2012, then a property boom in the capital and the south-east. It also correctly forecast that prices in large parts of the rest of the country would not recover their 2007 peak until 2016. In the midst of collapsing banks and a sinking stock market, it said: “For those brave enough to anticipate the upturn … the rewards may be substantial.”

But its latest report is far less enthusiastic about future price growth. Affordability tests imposed on mortgage borrowers after the financial crisis “are likely to cap price rises, particularly in London, where house price to household income ratios are highest, thanks to growth seen over the past 10 years”, said Lucian Cook, head of Savills residential research.

Constrained mortgage lending and high prices will also see homeownership levels continue to fall. Savills cited figures from the Council of Mortgage Lenders, which show that while 53% of those people born in 1960 became homeowners by the age of 30, only 26% of those born in 1990 can expect to do the same.

“Large numbers of older households have benefited from over two decades of house price growth and many now hold substantial amounts of housing equity,” said Neal Hudson of Savills Research.

“This creates an incentive to preserve house prices at existing levels or higher. Unfortunately, those high house prices also create a barrier to new buyers, particularly through the size of deposit they need to obtain. Rather than creating a nation of homeownership, it appears we have created a generation (or two) of homeowners.”

Landlords will also face stiff challenges over the next five years. A combination of increasing interest rates and a capping of the tax relief on interest payments will significantly reduce the profitability of mortgaged buy-to-let investments.

“Over five years we expect the cash surplus [annual profit] on the average buy-to-let investment to fall from over £2,500 to under £950,” the estate agency said. “This will cause some highly geared buy-to-let investors to rationalise their portfolios and limit the ability of a larger number of others to expand.”

Private sector rents are not expected to rise much, however, as “rental affordability is already very stretched” and nationally, rents will rise by 3% a year between now and 2020, Savills added.


Source: The Guardian

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