Property prices will rise 26% by 2018 but London will flatline in two years' time, top estate agent predicts
08-29-2014
•Savills revises forecast after a year of booming house prices
•Despite bumper growth seen in London, this will slow drastically
•It says 2% rate rise would mean extra £20bn in mortgage interest
By Lee Boyce for Thisismoney.co.uk
The average house price will have risen 25.7 per cent by the end of 2018 according to the latest revised forecast from a leading international estate agent.
Savills says booming property values have ‘exceeded all expectations’ over the past year and as a result, the firm expects average growth to settle at 9.5 per cent by the end of 2014 – three per cent higher than originally forecast.
However, the yearly growth won’t remain this strong. It predicts prices will rise by a smaller four per cent next year, 3.5 per cent in 2016 and 2017, and then three per cent in 2018. Even still, it had originally forecast slightly smaller growth of 25.2 per cent over the five years.
Growth hotspots: Savills predicts the strongest regions for property price rises in the next five years will be in the South East, East and South West
Savills predicts London will struggle to keep up strong momentum it has seen in recent months. By the end of this year, it forecasts prices will have risen 15 per cent in the capital – far higher than the 8.5 per cent originally predicted.
But in 2016, it expects values to be flat in the capital, followed by smaller percentage rises than anywhere else in the country in both 2017 and 2018.
It says there are signs demand is weakening, with lead indicators suggesting a change in sentiment in London.
The South and East of England were all originally forecast to show slightly higher levels of growth than London in 2014, but have underperformed the capital to date. Both regions are still expected to end the year in double digit growth.
These markets are still expected to show the strongest five-year growth, outperforming London, as evidence mounts of the flow of buyers and equity out from the capital.
HOUSE PRICE PREDICTIONS FROM SAVILLS
Lucian Cook, Savills UK head of residential research, said: ‘House price growth in the mainstream market has been underpinned by record low interest rates, rising loan-to-income lending and pent up demand from buyers re-entering the market as the economy and consumer sentiment have improved.
‘But these extraordinary rates of house price growth cannot continue in the current, more regulated mortgage environment, particularly in the face of likely interest rate rises.’
The Savills forecasts are based on an assumption average mortgage interest rates will reach five per cent by the end of 2018, a level that Cook believes would leave room for further price growth at a national level at the end of the forecast period.
He adds: ‘Higher interest rates would increase the risks in sectors of the market where borrowers have taken on high levels of mortgage debt relative to income, but it is difficult to see this as a catalyst for a wholesale housing market correction, rather we anticipate a slowing of growth, particularly in London and the South.’
HOUSE PRICE PREDICTIONS FROM SAVILLS
| Region |
2014 |
2015 |
2016 |
2017 |
2018 |
2014-18 |
|---|---|---|---|---|---|---|
|
UK |
9.5% |
4% |
3.5% |
3.5% |
3% |
25.7% |
|
London |
15% |
5% |
0% |
1% |
2% |
24.4% |
|
South East |
12% |
5% |
4% |
4% |
3.5% |
31.6% |
|
South West |
11% |
4.5% |
4% |
4% |
3.5% |
29.9% |
|
East |
11.5% |
5% |
4% |
4% |
3.5% |
31.1% |
|
East Midlands |
6% |
4% |
3.5% |
3.5% |
3% |
21.6% |
|
West Midlands |
6% |
4% |
3.5% |
3.5% |
3% |
21.6% |
|
North East |
5% |
4% |
3% |
2.5% |
2.5% |
18.2% |
|
North West |
5.5% |
4.5% |
3% |
3% |
2.5% |
19.9% |
|
Yorks & Humber |
5% |
4.5% |
3% |
3% |
2.5% |
19.3% |
|
Wales |
8% |
3.5% |
3% |
3% |
2.5% |
21.6% |
|
Scotland |
6.5% |
2.5% |
3% |
3% |
2.5% |
18.7% |
Research by the firm suggests the total current cost of mortgage interest amongst owner-occupiers in Great Britain stands at £33billion, a figure that is at the same level as a decade ago.
However, a two per cent rise in interest rates would increase this by £20billion, adding £2,360 to the average annual mortgage bill across England and Wales and £4,000 in London.
The Savills report comes after Office for National Statistics data last week found house prices in the UK increased by 10.2 per cent in the year to June to reach £265,000.
The annual rise is slightly lower than 10.4 per cent recorded in May, but still means £3,000 was added to the average property in the month.
Yearly house price increases in England were driven largely by an annual increase in London of 19.3 per cent and to a lesser extent increases in the South East and the East with growth of 9.7 and 7.9 per cent respectively.