UK house price recovery delayed until 2028

Landlords face a further fall in property values next year, with a recovery in house prices not expected until 2028.

Savills forecasts that average UK house prices will fall by 1.5% in 2027 as the prolonged Middle East conflict keeps mortgage rates higher for longer.

Its forecast puts average mortgage rates above 5% until early 2028, delaying relief for buyers.

However, average property values are expected to rise by 15.8%, or £56,500, over the five years to 2031.

Houses to outperform flats

Dan Hill, a residential research associate at Savills, said: “Markets combining relative affordability with strong employment and investment prospects are expected to outperform, including Manchester, Leeds, Liverpool and Bristol, alongside well-connected commuter locations offering better value than their surrounding regions.

“Property type will also remain an important driver of performance.”

He added: “Demand for larger family homes continues to be supported by flexible working patterns and changing buyer demographics, while flats face headwinds from affordability constraints, building safety concerns and greater supply.

“As a result, we expect houses to continue outperforming flats.”

Buy to let pressures

Lower returns, increased regulation and higher taxation are expected to keep buy to let activity below its long-term average and accelerate the shift towards larger, professional landlords.

Meanwhile, first-time buyers are forecast to lead the recovery from 2028 and overtake cash buyers as the largest buyer group by 2029.

Savills expects support from less stringent mortgage stress testing, relaxed restrictions on high loan-to-value lending and the Government’s ‘Your First Home’ scheme.

Existing homeowners are likely to hold back until improving affordability releases pent-up demand from 2028 onwards, while cash purchases are expected to decline.

Regional house price growth

The strongest five-year price growth is forecast across the North of England, Wales and Scotland, supported by relative affordability and economic prospects.

Average house prices in the three northern regions remain below six times average earnings, compared with 11.3 times in London.

Prime London, however, is expected to outperform the capital’s mainstream market later in the forecast period, following several years of price falls.

Across the UK, annual house price growth is forecast to reach 3.5% in 2028, accelerating to 5% in both 2029 and 2030 before easing to 3% in 2031.