UK housing market is past its ‘peak pain’, declares Savills

Upmarket estate agent says prices will start to bottom out in 2024 as interest rates fall and will return to growth in 2025

Britain’s housing market is past “peak pain” and prices look likely to bottom out by next summer, according to the estate agency Savills.

The average UK house price is projected to fall by 3% in 2024, after a 4% drop this year, the upmarket estate agent and property advisory firm said in its five-year outlook.

Prices held up slightly better than expected in 2023, according to Savills, as mortgage markets settled over the spring and autumn months, after the chaos unleashed by Liz Truss’s mini-budget just over a year ago. Property values are estimated to be down a total of 7% since the autumn of last year to the end of 2023.

Savills expects the Bank of England to start cutting interest rates in the second half of 2024, reducing its base rate to 4.75% by the end of that year, from 5.25% now. The property company forecasts rates will fall to 1.75% in 2027.

The central bank has hinted that interest rates are likely to stay high for a prolonged period as it tries to tackle stubborn inflationary pressures. It left interest rates unchanged for the second time in a row last week after raising them to the highest level since the 2008 financial crisis, warning that the economy would be on the brink of recession in the coming election year.

Savills is forecasting a return to house price growth of 3.5% in 2025, rising to 5% in 2026, 6.5% in 2027 and slowing again to 5% in 2028.

The forecasts came as the mortgage lender Halifax said UK house prices rose last month after a run of six monthly falls as sellers adopted a cautious attitude, leading to a shortage of homes on the market.

The average price of a property rose to £281,974 in October, up by 1.1% from September, an increase of almost £3,000 and the first time prices have gone up since March. Compared with October last year, prices fell by 3.2%, smaller than the annual decline of 4.5% in September.

Lucian Cook, Savills’ head of residential research, said: “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 [fall] 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.”

As mortgage costs shot up over the past year, cash buyers have been the most resilient buyer group, with activity 3.5% higher than the 2017-19 average.

However, reflecting fewer deals with mortgaged buyers, in particular buy-to-let investors, overall property transactions are expected to end this year 20% down on 2022 at just over 1m, and stay at this level next year.