UK house price predictions for the next 5 years (2023 – 2027)

Contrary to speculations, the UK housing market is heading towards a correction, not a crash. Discover the market's 5-year forecast in this guide.

Angelina

4 minute read

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Updated on 4 Jul 2024

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News

In the wake of the pandemic, UK house prices have been on a steep upward trajectory. But in recent months, they have steadily dropped in response to inflation and interest rate increases. As the market becomes more volatile, many have begun to speculate whether or not another UK housing market crash is on the horizon.

To answer this question, we’ll discuss UK house price predictions for the next 5 years based on different expert sources. We’ll also look at the state of the rental market and whether it’s a good time to invest in a rental property.

The housing market has slowed due to economic challenges and the fierce surge in house prices since March 2020. Potential homebuyers have paused their plans to wait for a more stable market.

Nationwide's data shows that UK house prices have fallen by 1.1% over the past year, which is the first annual decline in nearly 3 years and the lowest level since November 2012. Additionally, February witnessed a drop of 0.5% in house prices, marking the 6th consecutive month of decline.

Zoopla reports that sellers are discounting their homes to achieve a sale, with an average reduction of £14,100. This equates to a third of the gains made during the pandemic.

The housing market is predicted to slow down due to the expected base rate rise, resulting in high mortgage rates. As a result, fewer buyers can afford homes, leading to a drop in house prices.

As such, knowing the predicted base rate and understanding its influence on house prices is essential to know when it's a good time to buy properties.

2023 – 2024

The predicted slowdown in the housing market is mainly due to the expected rise of the base rate in 2023 – 2024. Savills anticipates that the base rate will reach 4% in early 2023 and remain at that level until mid-2024 before decreasing. Capital Economics forecasts that the base rate will reach 5% in 2023 before dropping to 4.25% in 2024.

However, experts agree that high mortgage rates of around 5% will remain standard for the next 2 years. As a result, fewer buyers can afford homes, and house prices will drop. This slowdown in the housing market is also due to sellers' reluctance to sell their properties when prices fall.

Estate agents Savills and Knight Frank predict that house prices will decline by 10% and 5%, respectively, in 2023. Capital Economics forecasts that house prices in Q4 of 2023 will be 8.5% lower than in Q4 of 2022.

Experts have different opinions about how fast house prices will drop. But they all agree that by the end of 2024, house prices will be around 10% lower, erasing half of the gains made by homeowners since the beginning of the pandemic.

According to Savills, if mortgage lenders cut rates next year, house prices will start to recover from the end of 2024 onward.

2025 – 2026

Savills thinks the drop in house prices will only last for a while, unlike after the financial crisis. Suppose mortgage lenders reduce rates in the next year, and the base rate drops from mid-2024 due to falling inflation. In that case, Savills predicts a more significant 7% increase in house prices in 2026. So, the UK housing market crash is unlikely.

2027

The Office for Budget Responsibility (OBR) predicts a property price increase of 3.5% in 2027, while Statista forecasts an average house price growth of 1.7% between 2023 and 2027.

The UK rental market is undergoing notable transformations, particularly in London and Birmingham. These cities are witnessing a flurry of construction activities, with investors and PBSA ventures focusing on housing projects.

London is experiencing the rise of Build-to-Rent (BTR) developments, offering professionally managed rental properties with a range of amenities. This trend is set to reshape the rental landscape in the city.

In Birmingham, an interesting practice has emerged, with entire houses being rented out to groups of students. Letting agents facilitate this process by listing properties with multiple bedrooms, allowing students to rent the entire house together.

Despite these developments, the rental market has experienced slower demand this year, with student occupancy levels at approximately 60% instead of the usual 95%. Various factors may contribute to this decline, including shifts in student enrollment patterns. However, the market remains dynamic, with ongoing efforts to address housing shortages and cater to specific market segments.

UK-wide rents are expected to increase annually by 3 – 4% between 2023 and 2026. However, there’re regional variations, with rental growth in city centres, predicted to be as low as 1% in Edinburgh and Glasgow and as high as 6% in Manchester and London.

The return of students and young professionals after the pandemic has fuelled the rising demand for rental properties, with rental enquiries currently 46% above the 5-year average. However, the supply of rental properties is 38% below the 5-year average, according to Zoopla's Rental Market Report from December 2022. This mismatch between demand and supply is expected to continue, with rental demand predicted to remain high in 2023.

Rising mortgage rates, inflation, and changes in tax and regulations are putting pressure on landlords with buy-to-let portfolios.

Stamp Duty for second homes has gone up, tax relief has been reduced, capital gains tax allowance has been halved several times, and the Renters Reform Bill will put an end to 'no fault’ evictions. Local regulations like 90-day rule in London, and mandatory HMO licensing in Birmingham add additional burdens.

Additionally, the house price growth is already slowing, reducing the security on loans. This could make it harder for landlords to repay their mortgages and may increase repossessions. In such a scenario, landlords may choose between selling their properties or raising their rents. According to Hamptons, in 2022, UK landlords sold 35,000 more properties than they purchased.

However, holding onto a property can be a wise decision if you have a solid financial cushion and can manage mortgage payments. This strategy can pay off in the long run as property values tend to appreciate over time. And with the rising demand for rental properties in popular cities like London and Birmingham, you can charge a reasonable rental price and earn a sustainable income.

If you are considering purchasing a buy-to-let property, you must ensure that the property will generate a positive cash flow, even if interest rates rise and housing prices fall.

It's essential to research and carefully consider the location, rental demand, and potential return on investment. You should also be prepared for the responsibilities and challenges of being a landlord, such as finding reliable tenants, dealing with maintenance and repairs, and adhering to legal and financial requirements.

You can take off some load of renting out a house using an online rental platform. On HousingAnywhere, you can manage the entire rental process online, from selecting tenants to setting up monthly payment plans.

This article is for informational purposes only. Please consult the appropriate authorities or a lawyer for legal advice.

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