06 Nov UK property price set to rise by an average 17% by end of 2020
House price growth across the UK’s mainstream markets has exceeded expectations in 2015 but there is still room for further increases providing interest rates do not rise too steeply, according to new research.
The timing and pace of interest rate rises, coupled with patterns of economic growth at a regional level, will dictate the distribution and sustainability of any increases, says the report from international real estate adviser Savills.
The firm forecasts that prices will rise by an average of 17% by the end of 2020, ranging from 21.6% in the South East to 12% in the North East, assuming that mortgage rates do not exceed 4.5%. Any combination of higher house price growth or high mortgage rates could leave affordability looking stretched.
Much depends on the speed at which interest rates rise. If rates rise too quickly mainstream house price growth will be quickly curtailed. On the flipside, if rates remain low for too long, there is a risk that prices will rise too far, creating affordability issues further down the line when they do eventually rise,’ said Lucian Cook, head of Savills residential research.
‘That risk has been mitigated by recent mortgage regulation which, by stress testing affordability, caps the amount people can borrow relative to incomes. That is likely to cap price rises, particularly in London, where house price to household income ratios are highest, thanks to growth seen over the past 10 years,’ he added.
London’s mainstream markets are expected to underperform its hinterland, with average growth of 15.3% forecast over the next five years, though this will range from 20% to just 10% depending on specific location and post downturn levels of house price growth.
Lower value outer London boroughs have greater remaining capacity for house price growth than higher value parts of the capital, having grown in line with the South East and East of England rather than London itself over recent years.
While Walthamstow and Lewisham are expected to show the strongest growth, outperforming the mainstream submarkets of boroughs such as Hammersmith and Fulham and Richmond.
The strongest price rises are therefore expected in parts of the south and east of England, which offer value relative to the capital so should benefit as the ripple gains traction. Growth beyond will depend on the strength of regional wealth generation and the ability of cities such as Manchester and Birmingham to act as catalysts to reinvigorate their housing markets.
At the same time, annual transaction levels, at just over 1.2 million this year, are expected to reach 1.3 million in 2020, far short of the pre-crunch norm of around 1.7 million, as deposit affordability continues to act as a brake on demand and the changes to the taxation of buy to let property restrict the ability of some landlords to expand their portfolios.