Savills the international real estate agents have revised their 5-year UK housing forecast to take into account this year’s so far record levels of price growth.
The main points:
– Savills has increased its five-year house price forecast to 25.7%
– Average residential property prices are expected to grow by 9.5% this year.
– The buoyant property market is helping buy-to-let landlords achieve higher returns.
The past year has seen average UK house price increases exceed all expectations over the past year, though this could leave some markets slowing down in the mid-term, that’s according to international real estate adviser, Savills.
Savills Tuesday released their revised five-year mainstream market forecasts which takes account of growth seen in the first half of 2014.
They now expect average annual UK house price growth to achieve 9.5 per cent this year, 2 per cent more than their original forecast of 6.5 per cent.
This, Savills now predict, will be followed by 4.0 per cent growth next year (2015) and coverall growth over the next five years to 2018 of 25.7 per. This is slightly higher than their original 25.2 per cent forecast made in 2013.
The main changes to these forecasts are as a result of the exceptional growth seen in the first half of 2014 in London and the corresponding markets in the South and East of England, all expected to end the year well into double digit growth.
Despite an expected slowing down in the second half of 2014, Savills are forecasting that prices in London will reach 15 per cent, a full 6.5 per cent above their previous forecast which was for growth of 8.5 per cent.
Savills revised 5 year mainstream house price forecasts:
While Savills’ five-year growth forecast for 2014-2018 remain pretty much unchanged, they say the rate of recent growth cannot continue and affordability will become stretched as and when interest rates rise.
Markets just outside of London particularly the South-East are expected to show the strongest growth over the next five years, as buyers and their capital begin to flow out to these regions. This growth will be followed by the Midlands and the North which Savills say
“have the potential to outperform thereafter, as has been seen in previous cycles”.
Research by Savills shows that the total current cost of mortgage interest amongst owner-occupiers in Great Britain is £33 billion, a figure which is not much different than a decade ago. However, only a 2 per cent rise in interest rates would end up adding something like £2,360 to the average annual mortgage bill across England and Wales and £4,000 in London.
Savills say their forecasts are based on an assumption that average mortgage interest rates (base rate plus lender’s margin) will reach 5.0 per cent by the end of 2018.
At this level Savills believe there is still some room left for further price growth at a national level at the end of their forecast period in 2018.
This potential capital growth in residential property prices is the main reason that many more people are now choosing to invest in property. Across the UK people, especially the young, are choosing to rent their home rather than make the sacrifices necessary to save for a deposit whenfaced with property value rises which are going further away from them.
Buy-to-let investments have the advantage of regular income in the form of rents which in the UK have been increasing steadily due to the high demand for rental property, which in turn is being driven by the growth in house prices.
Savills is a global real estate services provider listed on the London Stock Exchange. Savills operates from over 600 corporate and associate offices, employing more than 27,000 people in over 60 countries throughout the Americas, the UK, Europe, Asia Pacific, Africa and the Middle East, offering a broad range of specialist advisory, management and transactional services to clients all over the world.