Savills revises its five-year forecast for house price growth in prime markets

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Property group Savills has released revised five-year forecasts for key UK property markets, reflecting strong levels of activity in central London and key regional markets, but also against a backdrop of international uncertainty and national.

Central London recovery underway, but caution remains

While the shape of the recovery remains broadly as previously forecast in November 2021, the long-awaited rebound in values ​​in central London has been pushed back to 2023. The company expects property prices in central of London increase by +4% in 2022 (against +8% previously forecast in November 2021).

This reflects a slower-than-expected rate of return from international buyers, as well as the war with Ukraine and ongoing domestic political instability that have caused a degree of caution that is limiting price growth.

Savills expects a stronger recovery in 2023 and projects growth of +7% (vs. +4%) as the pace of demand from overseas is expected to pick up.

Over the next five years, prices in central London are expected to rise by a total of 21.6%, despite a slight slowdown in growth ahead of the general election due in 2024.

“The strong activity over the past six months, the relative value of supply and the prospects for global wealth generation give us confidence that central London core will continue to recover steadily over the next two years,” comments Frances. McDonald, research analyst at Savills. .

“However, the pace of return from international buyers has so far been slow, holding back the faster recovery we previously anticipated. Early indicators suggest things should improve in the second half of the year and into 2023. , as affluent shoppers have gradually started to return to traditional major postcodes such as Chelsea, Belgravia, Kensington, Mayfair, Notting Hill and Holland Park over the past three months, bolstering the outlook for price growth at- beyond this year.

“Longer term, beneficial ownership registration requirements for homes held in offshore vehicles have the potential to dampen some demand among a limited number of longer term buyers. But, while historically there have been many advantages to using offshore vehicles to hold property in the UK, the tax advantages have already largely been removed. As such, we have only slightly reduced our price outlook over the next five years,” continues McDonald.

Cost of living pressures are starting to tighten in the outskirts of London

In the more domestic markets around London, continued unmet demand from those looking to expand and lack of appropriate action will support near-term price growth. Savills expects price growth in these markets to average +5% in 2022.

But while prime markets (roughly the top 5-10% in value) are generally more resilient to interest rate hikes and the rising cost of debt, they are not completely immune. Savills expects to see signs of price sensitivity ripple through the market over the next six months, leading to slower growth from 2023. This should cap price growth at 13.6% over the five years until the end of 2026.

“In the medium term, the return of workers to the capital will fuel demand. Even as hybrid work becomes more conventional, workers still appreciate the proximity to the office and some of those who have bought a home in the country during the pandemic are realizing the need for a pied-à-terre, further supporting the demand for apartments,” McDonald continues.

“From 2023, we expect slightly lower levels of price growth with increasing pressure on buyers’ purchasing power, although the effect of earlier than expected interest rate hikes is likely to be compensated by an easing of mortgage regulations and an increase in capital flows coming out of central London.

Scotland, the Midlands and the North are expected to be the best performers in the long term

After two years of unprecedented price growth (+16% since March 2020), the pace of growth in key regional markets has started to slow. However, activity remains strong and there remains an imbalance between supply and demand in much of the market, which will support price growth in the immediate future.

Savills expects prime regional markets to grow on average by +5% in 2022, driven by growth in the London suburbs (+6%), with prices rising more steadily thereafter (+18.8% over five years until the end of 2026).

“Medium-term growth will largely depend on further increases in interest rates and the rise in the cost of living, which will limit the purchasing power of buyers. This will have the greatest impact in markets where buyers typically take on more debt.

“As a result, we are likely to see a continued slowdown in growth towards the end of this year, and while we do not expect a significant correction in price levels, realistic supplier pricing will once again become paramount. This will be particularly true for the markets that have seen the strongest growth since the start of the pandemic, namely the suburbs of London and the coastal and rural markets of southern England which have performed phenomenally during the pandemic. concludes Frances McDonald of Savills.

In the longer term, the core markets of Scotland, the Midlands and the North of England are expected to perform best, due to greater capacity for growth (compared to those in the south). Savills forecasts +21.7% and +22.8% total growth over the next five years.

To note *Within the M25 **Within a 30 minute journey †Within a 1 hour journey. These forecasts apply to average prices on the second-hand market. New build values ​​may not grow at the same rates.

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