Agent predicts prime market will fare better than mortgage-dependent mainstream markets
Estate agent giant Savills has predicted UK house prices will drop by 10% next year with mortgage rates rising to 4% and the cost of living crisis worsening.
Prime markets will fare better, Savills anticipated, with prices likely to fall by just 2% next year for the the top 5% to 10% by value properties in each region, because of their lower dependence on borrowing.
Savills’ forecast came after Chris Rhodes, chief financial officer at the Nationwide Building Society, gave an even more dire prediction to the Treasury Select Committee yesterday, saying UK house values could fall by up to 30% over the next 12 months. Although, he explained that was “worse case” scenario, and the building society’s central estimation was a fall of 8 to 10%.
Both forecasts come as the Bank of England is expected to put the price of borrowing up by 0.75% today, which will increase mortgage rates over the coming months.
But Savills also believed interest rates would “peak” next year and then start to be reduced and as affordability eased UK house prices would steadily rise again, going up by 7% in 2026 and 5.5% in 2027.
Lucian Cook, Savills head of residential research, said: “A new prime minister and fiscal policy U-turns appear to have reduced some of the pressure on interest rates, but affordability will still come under real pressure as the effect of higher interest rates feeds into buyers’ budgets. That, coupled with the significant cost of living pressures, means we expect to see prices fall by as much as 10% next year during a period of much reduced housing market activity.”
He added: “Looking longer term, the Bank of England’s relaxation of mortgage regulation over the summer has substantially enhanced the prospect of a price recovery, but only as and when interest rates start to be reduced, once inflationary pressures in the wider economy ease.”
Cook also predicted rental value growth will continue to outpace earnings growth in the short-term because of the imbalance between supply and demand.
This comes after Zoopla this week released a prediction that 4% to 5% would be the ‘new norm’ for mortgage rates, as it predicted a drop 5% in prices.
Richard Donnell, the firm’s executive director of research and insight, advised housebuilders at a webinar yesterday that they really needed to make sure they are delivering what customers want next year if they want to sell homes. He said: “I think the real important message here for builders is you have just got to make sure your site and your scheme and your mix of homes is aligned with what people are looking for.”
He also said it was important for builders to be “broadening out your mix of buyers, thinking about the motivations of these different buyer groups and how new build can appeal to them”.
He also said advertising of homes should change. A lot of money was being spent on advertising locally but “the reality is a lot of consumers are coming from much further”, he explained.
Donnell also told Housing Today he did not think starts and completions would drop next year.
“Starts and completions have been holding steady for some years now and so we don’t see them dropping back.
“Home building is a production game and builders need a certain level of output to maintain business plans - even with risks and extra costs on the horizon we expect builders to maintain current levels of starts and completions into 2023.”
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