UK Property Investment: The Dawn of Prosperity as Savills Forecasts Positive Growth

In a significant turn of events, Savills, a renowned leader in real estate research, foresees a promising future for the UK housing market. Following a tumultuous 12 months, the market is projected to reach its nadir in mid-2024, marking the end of what experts term the 'peak pain' period. The forecasted five-year house price outlook brings optimism to investors eyeing the UK property market.

Savills predicts a mere 3% fall in the average UK house price in 2024, attributing this stabilisation to the gradual easing of affordability pressures. This positive trend is supported by expectations that the Bank of England base rate will settle at 4.75% by the year's end. Notably, less debt-dependent prime regional markets are poised to lead the recovery, with a modest 1.5% fall projected for 2024.

Contrary to initial projections, the housing market displayed resilience in 2023, with values holding up better than expected. Savills anticipates that annual falls will stand at -4.0% by the end of 2023, resulting in a total decline of -7.0% since the autumn of 2022.

Prime Central London (PCL) emerges as a beacon of stability, experiencing the slightest downward pressure on prices in the coming year. With less reliance on mortgage debt and an attractive value proposition for affluent domestic and international buyers, PCL is expected to weather the storm. Despite being -19% below the 2014 peak, Savills envisions a gradual recovery, with the average PCL property potentially gaining £800,000 over the forecast period based on the £4.7 million average value in the Savills PCL index.

The forecast also sheds light on transaction expectations, with cash buyers exhibiting resilience and activity 3.5% higher than the 2017-19 average. While overall transactions are anticipated to be 20% lower than in 2022 due to subdued activity among mortgaged buyers, a gradual return is expected. Transactions are projected to reach 1.16 million at the end of the forecast period, slightly below the pre-pandemic norm of 1.2 million.

Savills upgraded its five-year (2024-2028) price growth forecasts to an impressive 17.9% in the mainstream market. The Bank of England is anticipated to initiate rate cuts in the second half of 2024, providing room for increased price growth from late 2025. Savills predicts an average house price growth of 17.9% over the five years to 2028, reaching £300,108 by the end of the forecast period.

Lucian Cook, head of residential research at Savills, expresses optimism, stating, "Interest rates are expected to have peaked, and the worst of the house price falls behind us. This means continued affordability pressures will likely result in further modest house price falls over the first half of 2024, resulting in a peak to trough house price adjustment of -10%."

The prime markets, especially Prime Central London, are anticipated to respond swiftly to improved sentiment. While values in PCL are projected to level off in 2024, a recovery is expected in subsequent years, with 3.5% price growth in 2025 and 18.7% over the next five years. Frances McDonald, director of residential research at Savills, emphasises the outperformance of PCL, stating, "With prime property values still well below historic peaks in central London, a recovery looks well overdue."

Savills also highlights regional variations in mainstream and prime markets, foreseeing an inflexion point in regional price growth in 2028. The late stages of the housing market cycle suggest slightly greater price falls in London and the South East in 2024, with the most substantial overall growth expected in Wales and the North East over the next five years.

In summary, Savills' optimistic five-year forecasts paint a bright picture for UK property investors, signalling the end of a challenging period and the beginning of a new era of growth and prosperity. Now is the opportune moment for investors to consider the potential of the UK property market and capitalise on the forecasted positive trajectory.