Affordability, not Brexit is the major factor in the UK housing market, says Savills
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UK house prices are set to rise broadly in line with incomes over the next five years, but the traditional north-south divide will turn on its head, with the Midlands, North and Scotland expected to see the strongest increases, according to forecasts from real estate adviser, Savills.
Savills predicts that house prices in the East of England will remain static during 2019 and begin to rise again (by 2%) in 2020, rising 9.3% over the next five years in total.
Brexit will continue to impact sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to determine the pattern of price growth over the longer term, the firm says.
Between 2019 and 2023, UK house prices will rise an average 14.8&, Savills projects, ranging from 21.6% in the North West to single digit growth in London, the South and East, far the strongest performers since the downturn, due to affordability constraints. Values in the capital’s prime market will perform much more strongly, given price adjustments already seen since 2014, the firm says.
Lucian Cook, Savills head of residential research, says: “Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term. That legacy will limit house price growth, but it should also protect the market from a correction.”
Tom Orford, head of residential at Savills Ipswich, added: “The Suffolk market has been rather patchy throughout 2018 but on the whole has performed well despite the uncertain conditions. The coastal strip and hot commuter zones have performed especially well. The forecast for prices to firm up is encouraging and will add confidence in the market.”
Transactions, rather than house prices, are often seen as the ultimate measure of market strength. Sales volumes have fallen only -6.9% since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market, Savills added.
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The firm expects this figure to decrease by just 1% over the next five years. But a continued rebalancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by -23%. This will add to upwards pressure on rents particularly in London, as investors look to lower value, higher yielding markets.