Rising housing costs persist alongside wage increases and interest rate reductions
UK Housing Market: A Cautiously Optimistic Outlook for the Next Five Years
The UK housing market is showing signs of resilience as we move into the second half of 2024, with experts predicting a modest improvement all round. This optimism is driven by several factors, including potential interest rate reductions, improved housing affordability, and the return of buyer confidence.
Slowing but Steady House Price Growth
After a period of strong growth during the pandemic, UK house prices slowed in 2024, with a forecasted decline of around 3%. However, from 2024 to 2028, average house price growth is expected to resume at about 2.7% annually. This slowdown and moderate growth reflect high inflation and rising borrowing costs constraining affordability.
Regional variations persist, with London remaining the most expensive market but with slower price growth compared to other regions like the North West, where employment gains are supporting stronger price increases. The rental market, especially in central London, is expected to continue growing albeit more slowly after 2025, roughly around 3% per year on average.
Elevated Mortgage Rates but Improving Affordability
Mortgage rates are forecasted to remain elevated in the near term due to stubborn inflation. Predictions suggest rates may rise to around 4.7% by 2028 and remain at this higher level at least into 2029. However, the overarching air of positivity in the property market is driven by buyer confidence and the expectation of a reduction in interest rates.
Currently, borrowers with strong credit and sizable deposits can access rates between 4% and 5%. Some downward pressure on rates may appear in late 2025 if inflation eases, but this will likely be gradual. The Bank of England aims to reduce its base rate to around 3.5% by 2030, which could eventually support lower mortgage costs but not in the immediate 5-year horizon.
First-Time Buyer Deals and Market Dynamics
The market continues to experience supply constraints despite slight increases in home-building. Government housing initiatives and planning reforms are expected to contribute positively in the longer term, potentially easing affordability pressures. Institutional investments, especially in build-to-rent schemes, are increasing the rental housing supply, addressing undersupply with quicker letting times reported.
Lenders are competitive due to recent mortgage rate declines, which may improve deal availability for first-time buyers who qualify with good credit and deposits. Savills predicts that more relaxed mortgage lending rules could increase first-time buyer deals by a quarter in the next five years.
In summary, over the next five years, UK housing affordability is expected to improve only slowly, constrained by higher mortgage rates and limited supply. House prices will likely grow moderately after a brief dip, while mortgage costs may remain high before easing near the decade’s end. First-time buyers with strong financial profiles may find more competitive mortgage deals, supported by increased institutional rental housing and ongoing government initiatives to boost supply.
It's important to note that the all-time high of 6.9 recorded for the price of a typical UK home in 2022 has not been exceeded, and wage growth was 5% in the same period. As always, prospective buyers and sellers are advised to consult with a trusted real estate professional to make informed decisions.
[1] Source 1 [2] Source 2 [3] Source 3 [4] Source 4
In the UK housing market, a predicted decline in interest rates may lead to lower mortgage costs for buyers, particularly those with strong credit and deposits, amid higher mortgage rates for the near term due to lingering inflation (finance, investing, housing-market, personal-finance, real-estate). Over the next five years, house prices are expected to grow moderately, with regional variations persisting, such as stronger price increases in the North West compared to London (housing-market). The rental market, including central London, will continue growing but at a slower pace after 2025 (housing-market, real-estate).
Government housing initiatives and planning reforms are seen as positive contributors to easing affordability pressures in the long term (economy, housing-market). Institutional investments in build-to-rent schemes increase the rental housing supply, addressing undersupply and reporting quicker letting times (economy, real-estate).
First-time buyers may find more competitive mortgage deals as a result of increased institutional rental housing and relaxed mortgage lending rules, potentially leading to a 25% increase in first-time buyer deals over the next five years (housing-market, personal-finance, real-estate).
