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News: UK house prices forecast to grow by 11.5pc in next five years

Mon, 12 Nov 12

 

UK house prices will grow by 11.5 per over the next five years, according to Savills. The firmís market forecast says that values will start to look more stable in 2013, but that inflation will fight growth for the foreseeable future, leading to greater variation in the market, both by region and wealth.

Having fallen by an average 2.0 per cent this year, Savills predicts that the average UK house price will rise by just 0.5 per cent in 2013 and a further 1.5 per cent in 2014, with growth totalling 11.5 per cent by 2017. But, they say, this headline 11.5 per cent average price rise will equate to falls of around 3.0 per cent, after adjustment for inflation.

 'Last year we forecast that UK house prices would fall by 2.0 per cent and that inflation rather than price falls would continue to strip out value thereafter,' says Lucian Cook, director, Savills residential research.   'This year we have seen average values fall in real terms.  We now expect the market to show slight nominal growth next year, but remain negative in inflation-adjusted terms until 2016.'

He explains that the mainstream market continues to adjust to weak economic growth and the long-lasting effect of the credit crunch on the accessibility to mortgage debt.

The North East and Yorkshire & Humberside are the only regions expected to show further nominal falls in 2013 and 2014, reflective of a marked North-South divide in sentiment and forecasts for economic recovery.

By contrast, London and the South East mainstream, having underperformed prime markets recently, will see small price rises of between 1.0 and 1.5 per cent in 2013.  This will be followed by a stronger 3.0 to 4.5 per cent uplift in 2014, marking the start of a recovery that will see prices rise by 21 per cent in Greater London over the period to the end of 2017.

'For real, inflation-adjusted house price growth to extend beyond London and the top tiers of the market, we need a sustained and widespread improvement in household incomes fuelled by a stronger economic recovery than we have seen to date,' says Cook.

'Over the last five years there have been wide geographical variations in the performance of the housing market, both in terms of price movements and transaction levels. We expect these distinctions to remain as we move to the next stage of recovery in the housing market cycle, when we expect to see a gradual pick up in transaction levels that have been the main casualty of the downturn.'

Savills forecasts that by 2017 annual transaction levels will reach almost 1.17 million, up one-third from their average in the years since the credit crunch, but still 28 per cent below the pre peak norm.

 'Another significant legacy of the credit crunch has been the divisions created between different buyer groups and tiers of the market,' says Cook.   He believes the market will continue to be shaped by the current distribution of housing wealth and limited availability of mortgage debt.

 

The under 35s currently control less than 4.0 per cent of the housing wealth in the owner occupied sector while the over 55s own over two-thirds, creating a huge chasm between the different generations in their ability to trade in a debt-constrained housing market.  This will be reflected in transaction levels in different locations and sectors, and a continued move toward renting in lower age groups.

Sales volumes in the sub £250k price bands will continue to be suppressed by a lack of mortgage activity, and are expected to increase by no more than a third over the next five years. This is still just over two-thirds of peak 2007 turnover levels.  

Savills estimates that the amount of housing wealth held by the under 35s will fall by 24 per cent to £62 billion over the next five years. Simultaneously, the lower tiers of the market will become increasingly driven by the investment value of property in an expanding private rented sector.

By contrast, at the upper end of the market, where buyers and sellers hold the majority of the UKís housing wealth, sales of £1 million plus homes will increase by around three-quarters, to exceed peak levels by 19 per cent by 2017.  This more buoyant market will see the amount of housing wealth held by the over 55s increase by 16 per cent - to £1.65 trillion by 2017.


See also: Home Asking Price Index

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