Economic uncertainty expected to drag house prices over next two years
The estate agent said transaction volumes are likely to fall by 16% over the next two years, before recovering by 2021, with house price growth also suffering during the same period.
With the UK’s negotiations to leave the EU expected to last two years, capacity for house price growth is predicted from 2019 as the UK’s economic situation is likely to become clearer. However, prices are likely to grow by an average of just 13% over the next five years as the market is constrained by “inevitable” interest rate rises, Savills said.
“There is no precedent for the current market and the Brexit vote makes forecasting more challenging than perhaps ever before,” said Lucian Cook, Savills UK head of residential research.
Different buyer segments will be affected accordingly, Savills said, with first-time buyers expected to face challenges in raising a deposit, subsequently pushing the amount of these purchasers to fall 15% to 275,00 in 2018.
“Schemes such as Help to Buy will remain important if volumes are to recover by 2021,” the report said. “Tougher lending criteria will also constrain mortgaged home owners looking to trade up, while cash buyer numbers, currently 35% of the market, may be discouraged by increased Stamp Duty.”
For mortgaged buy-to-let investors, transactions are predicted to fall from 120,000 to 90,000 in 2021, falling to a low of 80,000 in 2018. But cash buyers are also likely to be affected, according to the findings, with additional Stamp Duty to impact all buy-to-let purchases.
As first-time buyers and second steppers struggle to move home, Savills said demand for rental properties will increase. As a result, price growth in rental properties will be stronger, with average rents forecast to rise by 19% across the UK and 24.5% in London over the next five years.
As house prices in London have grown by staggering amounts since the credit crunch, London is likely to have less capacity for growth, which could potentially filter through to the South East. Markets deemed more affordable such as the Midlands, Wales and the North of England are expected to have greater potential for price growth, with Savills noting that they are “less impacted by interest rate rises, but many lack the economic catalyst needed to unlock this potential”.
Cook added: “The effect of Brexit is complicating a natural shift towards the later stages of the housing market cycle, when the strongest growth is seen beyond London and the South East. What is clear is that the housing market does not like political and economic uncertainty and this points to a lower growth, lower transaction market across the board.”