Prime property market set to surge

Robust economic growth and a shortage of homes on the market are likely to see a 3.5% increase in UK house prices in 2022, according to estate agents Savills.

David Sapsted

15 November 2021

The real estate company's five-year house price forecast also projected growth in 2023 of 3%, 2.5% in 2024, 2% in 2025 and 1.5% in 2026, accumulating in a 13.1% rise by 2026.This, however, is less than the growth seen over the past 18 months, when property transactions were disproportionately boosted by the pandemic and a surge in demand for homes away from city centres.

Next year a return to trend

Savills predicted that housing transactions - which reached a high of 1.5 million this year - would fall back to normal levels in 2022.Lucian Cook, Head of Residential research at Savills, said: “After such intensity in the market and without the imperative of a stamp duty holiday, we know that there’ll be less urgency in the market from 2022."Indeed, we have already seen three-month on three-month house price growth slip back from 3.9% at the end of June to 1.7% at the end of September.“With the prospect of inflationary pressures persisting into next year, bringing forward the first anticipated interest rate rise, we expect price growth in the near term to be somewhat more muted than we have seen of late.”

House prices by region

Broken down by regions, the report said that the North West and Yorkshire and Humberside could see an 18.8% rise in house prices over the next five years, while prices in Wales could increase by a similar amount.London, which already has by far the highest prices in the country, was expected to see the lowest growth at around 6% over the next five years, whilst SE England and East Anglia were predicted to grow by about 10% by 2026.Lawrence Bowles, Director of Residential research at Savills, said: “Given where we are in the housing market cycle, the north-south divide in house prices looks set to close further over the next five years.“There remains more of an affordability cushion beyond London and the South. The government’s levelling-up agenda has the potential to accelerate a rebalancing of the market, but only if it gains meaningful traction.”

Levelling up hits London prices

Mr Bowles said that the potential for price growth would be more constrained in the London market, with only a 2% growth predicted next year.“This reflects the extent to which London prices became dislocated from the rest of the UK housing market through strong price growth from 2005 to 2016, something so pronounced it is expected to still limit price growth across large parts of the capital a decade later,” he said.However, the report said that the prime central London market stood to benefit from growing overseas demand as the pandemic travel restrictions eased and international travel resumed.

Mobility boosts prime London market

Prime market prices in London were expected to rise by 8% next year and by almost 24% by 2026.Frances Clacy, research analyst at Savills, said: “We’ve already seen the beginnings of this recovery, primarily driven by demand for larger houses and, as such, by locations such as Notting Hill and Holland Park.“But, renewed demand for flats during the second half of 2021, particularly from those looking for a pied-à-terre, suggest growth is likely to become more balanced, both in terms of location and property type, going forward.”