MARKET NEWS

Story by Amber Murray

Savills has cut its estimate for house price growth over the next two years as caution stalls the housing market, but expects looser mortgage rules to boost in the market in the medium term.

The real estate giant cut its forecast for house price growth in 2025 from four per cent to one per cent, and its 2026 estimate from 5.5 per cent to four per cent.

“A lot has changed over the last six months,” Lucian Cook, head of residential research at Savills, said. “Greater geopolitical uncertainty – including tariffs and trade wars – has made predicting the precise path of further cuts more challenging.”

“In light of [slowing house price growth] and the potential for more buyer uncertainty in the run up to the autumn Budget, we have revised our house price forecast for this year,” he added.

Savills expects concerns over the prospect of future tax increases to weigh most heavily on the top end of the market, which has been particularly sluggish this year.

There’s also the impact of interest rates, which have been stickier than expected as inflation remains higher than the Bank of England would like.

“Higher than expected inflation in the UK is making policymakers cautious when it comes to further base rate cuts.

“While we have forecast based on the scenario described, there are ongoing risks in both directions which have the potential to disrupt the housing market,”  Dan Hill, research analyst at Savills, said.

Savills upgrades five-year forecast

Despite short-term caution, easier-to-access mortgages should boost growth from 2027 onwards.

“Recent easing of mortgage regulations, including more flexibility on affordability stress tests and higher allowances for loans above 4.5 times income, is likely to boost transaction volumes, particularly by helping more first-time buyers get on the ladder,” Cook said.

Savills expects that by 2027, transaction numbers will approach the post-financial crisis norm of 1.2 million per year.

It has predicted that the average UK house price will grow by 24.5 per cent by 2029, up from its previous prediction of 23.4 per cent.

Following a change in Bank of England guidance in March, lenders are no longer required to stress test borrowers at the Standard Variable Rate plus 1 per cent.

Several lenders have already modified their mortgage requirements in the wake of the Bank of England’s change.

Chancellor Rachel Reeves has planned a new “Freedom to Buy” schemes, which will make 95 per cent mortgages permanent, supported by a government-backed guarantee for lenders.

London to see slowest growth in UK

London house prices are set to be flat this year, and rise by just 15 per cent by 2029.

This is less than half the rate of the North West, which is set to be the fastest-growing area in terms of value.

While London prices boomed after the financial crisis, other regions of the UK have been playing catch up over the last few years as their comparative affordability draws buyers out of the capital.

Inner London prices fell by 2.1 per cent in July month on month, according to Rightmove’s latest house price index, while overall prices in the capital fell by 1.5 per cent.

Rightmove also noted that April’s increase in stamp duty, which removed stamp duty relief for first-time buyers, has hit buyer affordability.

The median first-time house purchase tipped over the threshold for paying stamp duty in April, meaning the average buyer needed to shell out an additional £6,250 – something only 15 per cent of first-time buyers in London can afford, according to a survey from Fairview Homes.

Sellers who delayed moves due to market uncertainty have also returned to the market, leading to a spike in supply.

The combination of price-conscious buyers and a glut of homes for sale has flattened house price growth in the capital, something unlikely to reverse in the near term.