UK House Price Growth Slows to Two-Year Low
Mortgage rate relief delayed as Bank of England prepares for further interest rate hike amidst conflicting recovery forecasts.
Callum Smith
UK house prices saw their slowest annual growth in over two years this October.
More than 2.3 million UK households face a significant increase in mortgage payments. Their fixed-rate deals expire by 2027.
External factors compound this pressure. Emily Williams stated, "The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage rate relief, which will weigh on buyer sentiment and affordability."
The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage rate relief, which will weigh on buyer sentiment and affordability.
Williams noted this situation will suppress activity and put pressure on prices next year. However, she added, "But this is unlikely to trigger a sharper correction."
The labour market remains resilient. Emily Williams highlighted this, stating, "Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient." This resilience, coupled with low forced sales, limits further downward pressure on prices.
Britain’s sluggish housing market will not recover until 2028, Savills projects. Average house prices will drift lower during the rest of 2026 and fall by 1.5% in 2027.
Savills expects house prices to start recovering from the second half of 2028. Improving economic prospects and mortgage affordability will support this rebound. The firm forecasts a 15.8% rise in house prices, an average of £56,500, over the five years to 2031.
First-time buyers will lead this recovery from 2028. Deposit affordability and government initiatives like the Your First Home scheme will aid them. Savills anticipates house price growth to accelerate in the second half of 2028, reaching 3.5% for the year as a whole.
The strongest five-year house price growth in percentage terms is forecast across northern England, Wales, and Scotland. Relative affordability and economic prospects support this. Dan Hill noted that property type will also remain an important driver of performance, with demand for larger family homes continuing to be supported by flexible working patterns and changing buyer demographics.
In contrast to Savills' outlook, Connells Group claims UK house prices will rise by 1.5% next year. This will be followed by a 2.5% increase in 2028 and a further 2% rise in 2029. Average interest rates on mortgage deals will not drop below 5% until early 2028, Savills projects.