Whilst it seems clear that yearly growth could not maintain its soaring speed there seems to be much confusion concerning the rate at which the million pound plus UK property market can be expected to grow.
The latest revised forecast from the leading international estate agent, Savills, suggests that the average UK house price will have risen 25.7 per cent by the end of 2018.
Savills acknowledge that whilst property prices have “exceeded all expectations” over the past year yearly growth can’t be expected to remain this strong. Their research does however expect that average growth will settle at 9.5% by the end of 2014 – this is three percent higher than originally forecast.
The 9.5% increase this year is the largest growth prediction whilst it forecasts that prices will increase 4% in 2015 and suggests a 3.5% increase in 2016 and 2017 (mainly outside of London), followed by a 3% rise in 2018.
These figures suggest that whilst the London property market will struggle to maintain the strong momentum that’s been seen this year overall prices will have risen 15% in London, demonstrating the capital to be a consistently strong investment. This figure is far higher than the 8.5% originally predicted.
This stabilisation is a positive sign and allows the market the opportunity to reverberate into the South and East of England. Both regions are expected to end the year in double digit growth. From a longer-term investment perspective these markets are expected to show the strongest five-year growth, outperforming London from this point forward as both buyers and equity starts to move outwardly from the capital.
Lucian Cook, Savills UK head of residential research, said: ‘House price growth in the mainstream market has been underpinned by record low interest rates, rising loan-to-income lending and pent up demand from buyers re-entering the market as the economy and consumer sentiment have improved.
‘But these extraordinary rates of house price growth cannot continue in the current, more regulated mortgage environment, particularly in the face of likely interest rate rises.’
The Savills forecasts are based on an assumption average mortgage interest rates will reach five per cent by the end of 2018, a level that Cook believes would leave room for further price growth at a national level at the end of the forecast period.
He adds: ‘Higher interest rates would increase the risks in sectors of the market where borrowers have taken on high levels of mortgage debt relative to income, but it is difficult to see this as a catalyst for a wholesale housing market correction, rather we anticipate a slowing of growth, particularly in London and the South.’
The forecasts also suggest that the total current amount of mortgage interest amongst owner-occupiers in Great Britain stands at £33 billion – this figure was at the same level in 2004.
Yearly house price increases in England were driven largely by an annual increase in London of 19.3 per cent and to a lesser extent increases in the South East and the East with growth of 9.7 and 7.9 per cent respectively.