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Savills plc

07/27/2021 | Press release | Distributed by Public on 07/27/2021 04:17

Savills upgrades 2021 house price forecast but next few years harder to predict

The firm now expects average UK house price growth of 9.0% across the whole year, based on the incredibly strong first half, which saw values rise by 5.6% on average according to Nationwide. Forecasts issued before the stamp duty holiday extension anticipated more modest 4.0% growth for 2021. Further growth of 3.5% is expected in 2022.

In the period 2022 to 2025 prices are expected to rise by between 11% and 12%, taking total growth to the end of 2025 to 21.5%, on a par with previous forecasts. But, Savills says, the shape of growth over the next four years is more difficult to forecast precisely given the extraordinary conditions of the past 18 months.

'Some of the growth generated by the extraordinary market conditions of 2020 and 2021 could unwind at times during 2022, but we see nothing on the horizon that would trigger a major house price correction,' said Lucian Cook, Savills head of residential research.

Savills mainstream house price forecasts and economic assumptions:

2021

2022

2023

2024

2025

5yr Total

UK

9.0%

3.5%

3.0%

2.5%

2.0%

21.5%

London

7.0%

2.0%

1.5%

1.0%

0.5%

12.4%

Base rate

0.1%

0.1%

0.1%

0.3%

0.5%

-

Unemployment (UK)

6.0%

4.6%

4.0%

3.7%

3.6%

-

Annual Income Growth (UK)

0.8%

0.0%

4.1%

3.9%

3.8%

17.2%

Source: Savills, Oxford Economics

'New buyer demand continues to outweigh supply despite the potential stamp duty saving falling from £15,000 at June 30 to just £2,500 until the end of September, and this against low levels of supply.

'This imbalance looks set to continue, underpinning further price growth over the near term, particularly as people look to lock into current low interest rates. But such strong growth in 2021 will leave less capacity for growth over the next few years, particularly as interest rates are expected to rise a little earlier than leading commentators had previously projected.

'The rate at which interest rates rise will also shape price growth. A steeper than anticipated jump in rates would restrict growth, although it would have to be severe to lead to actual falls in values - an outside risk in our view.'

Interest rate rises are critical to the forecasts, Savills says. The forecasts assume a Bank of England base rate no higher than 0.5% by the end of 2025.

A number of other key factors point to what Cook describes as a 'soft landing' for the market, rather than any dramatic correction in values.

Since the market reopened last year, price growth has been driven in large part by more affluent buyers, less reliant on mortgage debt and able to lock into low fixed interest rates. More generally, the pace of economic recovery has helped reduce unemployment levels, stress testing of lending is now embedded in the system, while interest rate rises are still expected to be slow and modest by the end of 2025, meaning a gradual squeeze on affordability.

These factors underpin Savills five year forecasts, but they also indicate limited capacity for further price growth at the end of this period, without substantially affecting who is able to buy and the number of potential transactions. First time buyers are likely to be increasingly reliant on government schemes and, where available, on the generosity of the bank of mum and dad.

After a strong start to the year, and over 200,000 transactions in June alone, transaction volumes are projected to total 1.62 million this, more than a third (35%) higher than the yearly average over the five years pre-pandemic.

The regional view

Savills continues to expect the markets of the Midlands and the North of England to show the strongest price growth, due to greater capacity for growth before hitting affordability ceilings. In the short term, however, buyer attention is expected to turn back towards urban markets, including London, as social distancing restrictions and international travel restrictions ease.

This will see the ratio of regional to UK average values slowly converge over the next five years, as the lower value regions see stronger growth, 'catching up' with the rest of the country.

2021

2022

2023

2024

2025

5 years to 2025

Av value* Dec 2020

Forecast value end 2025

UK

9.00%

3.50%

3.00%

2.50%

2.00%

21.50%

£230,920

£280,568

North West

10.50%

4.50%

4.00%

3.50%

3.00%

28.00%

£176,925

£226,464

Yorkshire & The Humber

10.50%

4.50%

4.00%

3.50%

3.00%

28.00%

£172,326

£220,577

Wales

10.00%

4.00%

4.00%

3.50%

3.00%

26.80%

£169,846

£215,365

Scotland

9.50%

4.00%

3.50%

3.00%

2.50%

24.40%

£156,768

£195,019

North East

8.00%

4.00%

3.50%

3.50%

3.00%

23.90%

£137,531

£170,401

East Midlands

9.00%

4.00%

3.50%

3.00%

2.50%

23.90%

£200,951

£248,978

West Midlands

9.00%

4.00%

3.50%

3.00%

2.50%

23.90%

£207,603

£257,220

South West

8.50%

3.50%

3.00%

2.50%

2.00%

20.90%

£264,512

£319,795

South East

9.00%

3.00%

2.50%

2.00%

1.50%

19.10%

£336,984

£401,348

East of England

8.00%

3.00%

2.50%

2.00%

1.50%

18.00%

£310,240

£366,083

London*

7.00%

2.00%

1.50%

1.00%

0.50%

12.40%

£486,562

£546,896

Source: Savills (*Nationwide)

*Note: Prime London and Prime Central London will perform differently. 5 year forecasts stand at +18.1% and +21.6% respectively