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North-south property price gap set to narrow, says Savills – Property Industry Eye

Savills’ latest UK house price forecast predicts that the North-South property value gap will continue to narrow over the next five years as affordability constraints slow price growth in the markets the most expensive ones closest to London.

Savills has revised its primary and primary five-year residential forecast. The company predicts that UK traditional home price growth is expected to be 3.5% next year as robust economic growth and a shortage of homes available for purchase continue to support prices.

The North-South divide in traditional house prices is expected to narrow further with five-year total price growth of 18.8% in the North West and Yorkshire and Humber topping 5.6% and 10.4% expected in London and the South East, respectively.

Prime Central London is expected to outperform all other prime and consumer markets after a long period of sluggish growth.

Real estate transactions are expected to fall back to normal levels after the GFC after 2022, after hitting an expected 1.5 million in 2021.

Average UK house prices are expected to increase by 13% over the next five years; less than the growth seen in the 16 months since the market reopened after the first foreclosure.

Lucian Cook, Head of Residential Research at Savills, commented: “After such intensity in the market and without the imperative of a stamp duty holiday, we know there will be less urgency in the market. from 2022. Indeed, we have already seen the growth in house prices over three months over three months fell from 3.9% at the end of June to 1.7% at the end of September.

“With the prospect of inflationary pressures lingering next year, resulting in the first anticipated hike in interest rates, we expect price growth in the near term to be a bit more subdued than what we’ve seen in recent past. time.

“However, while the latest indicators from RICS and TwentyCi suggest that demand has weakened, supply in the market has also been limited. This, combined with relatively low unemployment rates emerging from a recession, means we expect weaker growth as opposed to something more dramatic. ”

“With gradual interest rate hikes expected, we expect mortgage regulation introduced in 2014 to become clearer over the next five years. Affordability stress tests have meant that existing borrowers are unlikely to have financial problems as rates rise. But this will cap the amount that new buyers can borrow relative to their income in a higher interest rate environment, acting as a drag on both potential price growth and market activity over the course of the year. our forecast period. “

Table 1: General forecasts and economic assumptions *

Forecast 2022 Forecast 2023 Forecasts 2024 Forecast 2025 Forecast 2026 5 years until 2026 forecast
Growth in UK house prices + 3.5% + 3.0% + 2.5% + 2.0% + 1.5% + 13.1%
Operations (m) 1.24 1.14 1.09 1.09 1.09
GDP growth (all year) + 5.8% + 2.4% + 1.7% + 1.7% + 1.6%
Unemployment (end of year) 4.4% 4.2% 4.0% 3.8% 3.8%
Bank base rate (end of year) 0.5% 0.75% 1.0% 1.25% 1.5%

Source: Savills Research, Oxford Economics

Regional perspective

All regions have experienced upward pressure on prices since the market reopened in June 2020. Prices peaked at 9% growth in 2021, with markets furthest from London performing best. After an exceptionally strong year, weaker growth is expected for 2022 (+ 3.5%).

“Given where we are in the housing market cycle, the north-south divide in house prices is expected to narrow further over the next five years,” said Lawrence Bowles, director of residential research at Savills. “There remains more of an accessibility cushion beyond London and the South. The government’s upgrade program has the potential to accelerate a market rebalance, but only if it gains traction.”

“The potential for price growth seems more limited in the London consumer market (+ 2% expected in 2022), which has become increasingly confined to better-off households. This reflects the extent to which London prices have dislocated themselves from the rest of the UK property market by strong price growth from 2005 to 2016, something so pronounced that it is expected to further limit price growth in large parts of the capital a decade later.

Table 2: Residential forecasts for the general public

Current average (year on July 21) 2022 2023 2024 2025 2026 5 years


5-year average value (f)
North West £ 229,572 4.5% 4.0% 3.5% 3.0% 2.5% 18.8% £ 272,732
Yorkshire and the Humber £ 224,257 4.5% 4.0% 3.5% 3.0% 2.5% 18.8% £ 266,417
Wales £ 212,912 4.0% 4.0% 3.5% 3.0% 2.5% 18.2% £ 251,662
Northeast £ 181,001 4.0% 3.5% 3.5% 3.0% 2.5% 17.6% £ 212,857
East Midlands £ 252,943 4.0% 3.5% 3.0% 2.5% 2.0% 15.9% £ 293,160
West Midlands £ 264,697 4.0% 3.5% 3.0% 2.5% 2.0% 15.9% £ 306,784
Scotland £ 198,998 4.0% 3.5% 3.0% 2.5% 2.0% 15.9% £ 230,639
South West £ 341,971 3.5% 3.0% 2.5% 2.0% 1.5% 13.1% £ 386,769
South East £ 439,813 3.0% 2.5% 2.0% 1.5% 1.0% 10.4% £ 485,553
East of England £ 380,685 3.0% 2.5% 2.0% 1.5% 1.0% 10.4% £ 420,276
London £ 676,124 2.0% 1.5% 1.0% 0.5% 0.5% 5.6% £ 713,987
UK £ 327,838 3.5% 3.0% 2.5% 2.0% 1.5% 13.1% £ 370,785

Source: Savills Research, ONS

The market is prime (largely the top 5% -10% in value)

In contrast, the prime central London market continues to offer good value for money, against a historical background, and should benefit in the medium term from increased overseas demand with the resumption of international travel. They will join UK buyers and UK-domiciled international buyers who have started to seize the opportunity, which has already seen values ​​melt. Prices are expected to increase by + 8% in 2022 and + 23.9% by 2026.

After seven years of falling values, totaling -20%, real estate in the capital’s most prestigious postcodes has waited for a recovery, reports Savills. “We have already seen the start of this recovery, mainly driven by demand for larger homes and, as such, locations such as Notting Hill and Holland Park. But, renewed demand for apartments in the second half of 2021, especially from those looking for a pied-à-terre, suggests that growth is expected to become more balanced, both in terms of location and type. of ownership, going forward, ”Frances Clacy, Research Analyst at Savills, comments.

London’s leading domestic markets, which encompass high-value homes in places such as Chiswick and Putney, are also expected to outperform the general public with + 13.5% growth over the next five years.

“Less reliance on mortgage debt means less exposure to rate hikes in a part of the market also likely to benefit from a trickle down effect out of central London,” Clacy said.

Beyond London, Savills expects changes in working patterns to support demand in more rural areas further away from major employment centers, although to a lesser degree than in the last 18 years. last months. In privileged regions, prices are expected to increase by + 4% next year and + 19.3% over the next five years.

Table 3: Prime Residential Forecasts

2022 2023 2024 2025 2026 5 years
First central London + 8.0% + 4.0% + 2.0% + 4.0% + 4.0% + 23.9%
London exterior premium + 4.0% + 3.0% + 2.0% + 2.0% + 2.0% + 13.7%
Main UK regional average + 4.0% + 3.5% + 3.0% + 3.5% + 4.0% + 19.3%

Source: Savills Research

The rental market is rebounding

In the first eight months of 2021, the scramble for the country began to reverse as tenants returned to urban areas and rents returned to annual growth in markets such as Manchester, Birmingham and Edinburgh. The return of young workers and students to the cities has driven up demand from tenants, with a drop in the rental stock.

As a result, while average rents in London were lower in August 2021 than in 2020, the capital experienced the second fastest monthly rental growth after Northern Ireland.

Beyond this short-term recovery, Savills expects rents to return to their long-term correlation with income growth. This means UK rents are expected to rise 19.9% ​​over the next five years, in line with income expectations. Due to the strong recovery in London, the five-year outlook is somewhat higher. Here, Savills predicts rents will be 22.2% higher at the end of 2026 than they are today.

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