Savills, the international real estate adviser, have re-estimated their five year housing cost projections following a turbulent year in the UK property market.
The latest predictions from Savills estimate that UK house prices will be, on average, 9.5% more expensive by the end of the year. This is a sharp increase from the 6.5% previously estimated in February and is in part thanks to a booming market in London.
Their five year forecast now expects UK house prices to have risen by 25.7% by 2018. Again this is a readjusted figure, but is only slightly higher than the previous 25.2%. To calculate this they are assuming that mortgage rates will have risen to approximately 5% by 2018.
London was almost growing at a rate not too dissimilar from its total five year expectation (24.4%) at the beginning of summer when house prices were soaring at 20%. Referring exclusively to the 2014 forecast, in February Savills predicted that London house prices would see a increase of 8.5%. However such a strong early summer has meant that the new predictions forecast London’s house prices to have risen by 15% by the end of 2014. However, Savills obviously doesn’t see this as likely to make any significant changes as the five year estimation- 24.4% was not re-estimated.
This is because such a strong growth cannot be sustained. Savills UK head of residential research, Lucian Cook, said “These extraordinary rates of house price growth cannot continue.”
When interest rates rise, affordability rates will be dramatically stretched and already it is anticipated for a slow rest of the year. Savills have even predicted that the price of London houses will fall in 2015 from 6% to 5% and that by 2016 they will flat line.
The area set for the highest amount of growth- the South East, has seen predictions fall from 31.9% to 31.6% for the rest of the five years. However, Savills still has a strong belief in the region and expects it to see more growth than the capital because of the rising evidence highlighting “the flow of buyers and equity out from the capital”.
The firm also stated that “The midlands and the north have the potential to outperform thereafter, as has been seen in previous cycles.” shown by the increase in predictions in these areas. The North West and North East have both increased from 19.3% to 19.9%, and 17.6% to 18.2% respectively. Notably the biggest increase from February to the revised predictions is in the East Midlands where figures have jumped from 21.6% to 24.6%.