UK house price predictions for next 5 years: a landlord’s guide

UK house prices 2023 – are house prices going down?

Since the global financial crisis in 2008, UK house price growth has been strong and consistent. This is due to demand for homes outstripping supply, which inflates house prices.

From 2020, as a result of the Covid-19 pandemic, average prices increased even quicker as the government introduced a stamp duty holiday and more people looked to relocate.

However, since late 2022, growth has slowed. A combination of economic uncertainty, a cost of living crisis, high interest rates, and rising inflation has made it harder for people to buy properties.

Lower demand has led to average property prices falling after more than 10 years of steady growth.

Here’s an overview of average house prices over the last four years from some of the main data providers:

*Halifax and Nationwide figures are based on purchase prices from approved mortgages. Rightmove figures are based on asking prices for homes for sale

UK housing market predictions

At the start of 2023, many mortgage providers and property experts forecast that average house prices would fall significantly over the next 12 months.

The reasons for these negative forecasts included rising mortgage rates and a higher cost of living contributing towards lower demand from prospective buyers.

Here’s an overview of some of the 2023 house price predictions from leading market commentators:

Have these predictions come true?

As we can see from the table above, market commentators anticipated average house prices to fall in between five per cent and 10 per cent this year.

Looking at Nationwide’s House Price Index, the average UK property price was down 3.5 per cent year-on-year in June 2023. Meanwhile, Halifax’s data showed a year-on-year fall of 2.6 per cent in June 2023.

If prices continue to drop at the same rate during the second half of the year, then the predictions for an annual drop of between five per cent and 10 per cent could be proved right.

This article is intended as a guide. Always speak to a mortgage professional or property expert if you’re not sure of anything.

House price forecast 2023-2028 – will 2024 be a good year to buy a house?

Average prices have started to fall in 2023, but what could happen over the next five years?

The Office for Budget Responsibility (OBR) expects house prices to continue dropping as we go into next year, forecasting a 10 per cent fall by 2024.

Looking ahead to 2025, estate agency Savills predicts average house prices may start to recover if inflation continues to fall and the Bank of England reduces its base interest rate.

Savills predicts a bullish seven per cent house price rise in 2026, while the OBR suggests average prices could increase by 3.5 per cent in 2027.

On the other hand, Oxford Economics has predicted that UK house prices won’t return to their 2022 levels until 2028.

So, it looks like prices may start rising again over the next few years. However, growth could be slower than that witnessed between 2008 and 2022.

If you’re looking to buy a property earlier than 2024, read our article on whether now is a good time to buy a house for more information.

House price growth can be unpredictable

When looking at future house prices, there are plenty of factors to consider. A growing population could fuel demand for homes, while an ongoing shortage of new properties could restrict supply. This could lead to average prices growing again.

Property remains a solid long-term investment for many people. And while it may be harder to buy than ever before, the majority of the population have aspirations to own their own home. This is in contrast to some European countries where lifelong renting is the norm.

In recent years it’s been very hard to predict what might happen in the next six months, let alone the next five years.

For example, no one could have predicted how a global pandemic would affect house prices, while last year’s ill-fated mini-Budget that caused mortgage rates to increase rapidly was also unexpected.

What is a house prices crash – and will there be a housing crash in 2024?

Recent house price drops and ongoing economic uncertainty have led to some speculation that a housing market crash could be on the horizon.

A house price crash is when average prices drop significantly and suddenly. During a crash, a large proportion of homeowners would have to sell for a lot less than they’d like. A crash, also known as a period of decline or readjustment, usually follows a house price bubble (a sustained period of strong growth).

The most recent house price crash happened in the aftermath of the financial crisis in 2008. The Office for National Statistics estimates that average prices dropped by 15 per cent between 2008 and 2009, with prices not returning to their pre-crisis levels until 2012.

Avoiding a market crash is largely dependent on mortgage rates. If they continue to rise rapidly, people could default on their mortgage repayments and buyers may not be able to afford a new mortgage. This could lead to eroding prices and a worst case scenario of negative equity, which is when a property is worth less than the remaining value of its mortgage.

When will mortgage rates go down?

Since September 2022, average mortgage rates have fluctuated. There have been several occasions when lenders have withdrawn products from the market, before reinstating them with higher rates.

Analysis by Barrows and Forrester shows that since the end of Q1 2023, buy-to-let mortgage rates have increased to 4.5 per cent.

Rising mortgage rates have been driven by high inflation and a Bank of England base interest rate that has increased on 13 consecutive occasions and now sits at five per cent.

Inflation peaked at 11 per cent in October 2022, up from 2.5 per cent in June 2021. By June 2023 inflation had dropped to 7.9 per cent.

If inflation continues to fall, then it’s expected that mortgage interest rates will also decrease. However, they’re unlikely to return to the record-low levels seen before 2022.

UK house prices: what do they mean for landlords?

As a landlord, you’ll always be affected by house price fluctuations whether you’re looking to buy, sell, or keep your portfolio the same size.

Here are some key things to consider in relation your rental property:

• if average prices are rising, the value of your property could also rise which could benefit you if you come to sell in the future
• if average prices are falling, the value of your property could also decrease. This means it could be a bad time to sell but a good time to buy
• house prices go in cycles so keeping up to date can help landlords to make informed decisions when managing their portfolios
• the price you buy a rental property for affects its yield – the higher the rental yield, the better the return on investment
• mortgage rates and house prices are interlinked. High mortgage rates could impact the type of property you might be able to buy, plus how much your monthly repayments would be

What are your house price predictions for the next five years? Let us know in the comments below.

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