House prices to leap more than £60,000 over next five years

An aerial view of residential properties are pictured on June 26, 2023 in Enfield, England

House prices are expected to rise by more than £60,000 over the next five years as Britain’s mortgage crunch eases, a leading estate agent has said.

Savills significantly upgraded its five-year forecasts for the housing market, citing an “improved economic outlook”.

The agency is now expecting house prices to grow by 2.5pc this year, compared to a prior forecast values would drop by 3pc across 2024. That prediction was made in November when Britain was in recession.

The upgrade suggests the average UK house price, which stood at £285,000 at the end of 2023, will rise by £7,000 to £292,000 by the end of the year.

Its five-year price growth forecast has been upgraded from 17.9pc to 21.6pc. By 2028, the average UK house price will be £346,500, Savills said, an increase of £61,500.

Lucian Cook, head of residential research at Savills, said: “The outlook for 2024 has improved since our last forecasts as mortgage costs have nudged down slightly and are much less volatile.

“The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.”

Savills is significantly more optimistic than most market analysts. The average forecaster surveyed by the Treasury expects house prices to fall by 1.1pc this year, before a 2pc recovery next year.

Savills expects house prices to rebound as interest rates come down, making mortgages more affordable and allowing people to borrow more.

Bank of England officials will meet this week to set out new economic forecasts and vote on whether or not to cut interest rates. Analysts expect the Monetary Policy Committee (MPC), led by Andrew Bailey, to hold rates at 5.25pc this week, but hint at the possibility of cuts from June as inflation drops back to the 2pc target.

Jack Meaning, a former Bank of England economist who is now at Barclays, said: “We expect the MPC to acknowledge building confidence in the ongoing disinflationary process and to further ease its guidance, paving the way for a cut in June.”

Predictions that rates will soon be falling are likely to fuel Conservative hopes that households will feel some easing of financial pressures ahead of a likely autumn election.

Similarly, Savills’ house price forecasts suggest homeowners may feel better off by the time they get to cast their votes.

The estate agent’s previous gloomy forecast was made when the UK was in recession towards the end of last year. Since then the economy has returned to growth.

Official figures for the first quarter of the year will be published on Friday, with economists anticipating growth of 0.4pc.

Savills said average house prices dropped by 1.8pc in 2023, while transactions limped to just over one million. It came as mortgage rates surged to a high above 6.6pc last summer.

Mortgage rates have fluctuated in recent months, amid changing expectations of when the Bank will begin cutting interest rates and how fast it will do so.

Santander, NatWest, Halifax, and Nationwide all raised the rates on their mortgages last week to reflect the banks’ higher financing costs.

The average 2-year fixed deal on the market stood at 5.93pc last Friday, according to Moneyfacts, compared to 5.80pc a month earlier. However, borrowing costs remain well below the highs seen last year.

Mr Cook cautioned that continued uncertainty about the situation in the Middle East and stubborn inflation in the US meant significant falls in borrowing costs were unlikely in the months ahead.

He said: “We are unlikely to see a further meaningful fall in mortgage rates this year, with the potential for short term fluctuations in the cost of debt and house prices, as seen over the past week.”

However, he added: “Improving economic performance, combined with steady cuts to the base rate, will open up greater capacity for growth from 2025.”

House prices are also being supported by a lack of new home construction. Savills expects 160,000 properties to be completed over the coming year, barely half the Government’s 300,000 target and down from more than 200,000 over the past year.

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