Average house prices are set to increase by £84,000 over the next five years, according to the latest house price forecast from property adviser, Savills.
With inflation returning to the 2% target and the prospect that interest rates will continue to fall over the next two years, house prices are expected to return to consistent year-on-year growth.
The five-year mainstream house price forecast launched by Savills today expects house prices to increase by 4% in 2025 (up from 3.5% previously) or £14,500, and by 23.4% by the end of the five years to 2029.
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | Total Growth | |
| Average UK price growth (%) | 3.0% | 4.0% | 5.5% | 5.0% | 4.0% | 3.0% | 23.4% |
| Average UK house price (£) | £358,000 | £372,500 | £393,000 | £412,500 | £429,000 | £442,000 | £84,000 |
| Base rate (year-end) | 4.75% | 3.75% | 2.75% | 2.00% | 2.00% | 2.00% | – |
| Average mortgage rate | 4.56% | 4.16% | 3.36% | 2.64% | 2.64% | 2.64% | – |
| CPI inflation (year-end) | 2.3% | 2.5% | 2.1% | 2.1% | 2.1% | 2.0% | 11.3% |
| Nominal income growth | 2.9% | 2.9% | 2.6% | 2.5% | 3.1% | 3.0% | 15.0% |
| Real GDP growth | 1.9% | 1.5% | 1.7% | 1.7% | 1.6% | 1.6% | 8.3% |
Source: Savills Research
Light at the end of the tunnel
The impact of the cost-of-living crisis and rising mortgage rates is still felt by the UK housing market.
While house prices are now -2.3% below their August 2022 peak on a nominal basis, in real terms (adjusting for inflation), they have fallen by -10.5% over this period, according to Nationwide and the ONS.
Now that inflation is back on target, Savills has forecast a return to real house price growth of 11% over the next five years. This will take inflation-adjusted prices back to where they were before the mini-budget.
“With less external noise, house prices in the medium term will be dictated by the fundamentals of demand, supply and affordability,” comments Lucian Cook, head of residential research at Savills.
“The direction of mortgage rates has been key to buyer decisions over the past two years, and decreased monthly mortgage costs are now feeding through into improved confidence amongst prospective buyers, prompting the moderate house price growth we have seen over the past few months.
“A steady improvement in affordability should allow for house price growth to gain momentum over the next couple of years. But there is still some potential for a bumpy ride. The market will remain sensitive to short-term fluctuations in the cost of debt and changes to property taxation have the potential to cause some short-term disruption.”
Activity to gradually improve, but recovery won’t be uniform
Lower levels of transactions over the past two years have been a product of a harsher mortgage rate environment. This has had the most significant impact on home movers, typically most exposed to mortgage debt. In Q2 2024 home mover transactions fell below the level seen in 2008/09, according to Savills.
Overall, transactions are expected to remain slightly below their pre-pandemic average over the next five years, peaking at 1,150,000 in 2028, but recovery will not be uniform.
“Looking ahead we can expect some home movers to continue to hold off on moving until rates settle in 2027, when they will have also benefited from several years of house price growth to build up equity,” comments Emily Williams, director of research at Savills. “As such, there is potential for a sharp rise in activity among second and third steppers in the second half of our forecast period, as pent-up demand from the period of high interest rates is released.
“However, the number of first-time buyers active in the market is expected to stay below pre-pandemic levels due to a lack of any government support to replace Help to Buy. While increased regulation in the rental sector, combined with the newly increased second-home surcharge, will further dampen demand from both cash and mortgaged buy-to-let investors.”
Regional variation across the mainstream market
Regional performance is largely influenced by where we are in the housing market cycle. According to Savills, the UK housing market has been in the second half of the cycle since 2017, where the more affordable regions in the North and Scotland outperform the UK average and capacity for growth in London and the South is more limited.
However, the pandemic brought about behavioural changes that have disrupted cyclical trends.
“Lower levels of homeworking and the need to return to commuter hotspots near major employment hubs has driven slightly stronger than expected performance in London over the last 12 months. We expect to see some residual impact of the unwinding of the ‘race for space’ in 2025, bringing growth in the South West and East of England below that of the capital,” continued Emily Williams, director of research at Savills.
“But beyond 2025, affordability will have the biggest influence in every region. Despite falling mortgage rates, buyers in London and the South East will still need to borrow more relative to their income and accumulate a bigger deposit to buy, constraining house price growth.”
Savills expects the more affordable markets in the North, where mortgaged buyers are under less strain, to see the strongest acceleration in growth (between 6-7% in 2026 and 2027).
| 2025 | 2026 | 2027 | 2028 | 2029 | 5 years to 2029 | |
| North West | 5.0% | 7.0% | 6.5% | 4.5% | 3.5% | 29.4% |
| North East | 5.0% | 6.5% | 6.0% | 4.5% | 3.5% | 28.2% |
| Yorkshire and The Humber | 5.0% | 6.5% | 6.0% | 4.5% | 3.5% | 28.2% |
| West Midlands | 4.5% | 6.0% | 6.0% | 4.5% | 3.0% | 26.4% |
| Scotland | 5.0% | 6.0% | 5.5% | 4.0% | 3.0% | 25.8% |
| Wales | 3.5% | 5.5% | 6.0% | 4.5% | 3.5% | 25.2% |
| East Midlands | 4.0% | 5.5% | 5.5% | 4.5% | 3.0% | 24.6% |
| UK | 4.0% | 5.5% | 5.0% | 4.0% | 3.0% | 23.4% |
| South West | 2.5% | 5.5% | 5.0% | 4.0% | 3.0% | 21.6% |
| East of England | 2.5% | 5.0% | 4.5% | 3.5% | 3.0% | 19.9% |
| South East | 3.0% | 4.0% | 3.5% | 3.5% | 2.5% | 17.6% |
| London | 3.0% | 4.0% | 3.5% | 3.0% | 2.5% | 17.1% |
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