Property prices across Britain are expected to fall by 1.5 per cent next year, according to Savills.
The prolonged conflict in the Middle East has delayed the prospect of mortgage-rate relief for borrowers, the premium estate agency said.
Borrowers could face further pressure this week, with the Bank of England expected to raise its base rate from 3.75 per cent to 4 per cent on Thursday.
The base rate is forecast to climb to 4.25 per cent next year, although several major lenders have cut mortgage rates this week.
Savills does not expect house prices to begin recovering until the second half of 2028. It then forecasts annual growth of 5 per cent in both 2029 and 2030.
Not everyone agrees with that outlook. Property market forecaster Fred Harrison told This is Money this week that a new housing crash had begun, with prices potentially falling by more than 30 per cent over the next four years.
Savills said the conflict in the Middle East was weighing on market sentiment and keeping mortgage rates higher for longer.
It expects average interest rates on mortgage deals to remain above 5 per cent until early 2028.
UK property prices are not expected to begin recovering until the second half of 2028, according to Savills
Savills forecasts no average house price growth across the UK this year, followed by a 1.5 per cent, or £5,500, decline in 2027. Prices are then expected to rise by 3.5 per cent, or £12,500, in 2028 and by 5 per cent, or £18,500, in 2029.
Over the five years to 2031, the agency expects average UK property prices to increase by 15.8 per cent, equivalent to around £56,500.
That increase is expected to outpace both income growth, forecast at 14.4 per cent, and consumer price index inflation over the same five-year period.
In the near term, however, Savills expects average property prices to continue falling this year and throughout 2027, producing an overall peak-to-trough decline of about 3 per cent.
Higher mortgage rates are also expected to reduce transaction volumes by weighing on buyers’ willingness and ability to purchase, Savills added.
Emily Williams, director of residential research at Savills, said: ‘The drawn-out conflict in the Middle East has delayed the prospect of meaningful mortgage-rate relief, putting pressure on buyer sentiment and affordability.
‘We expect this to suppress activity and put further pressure on prices next year.’
She added: ‘However, this is unlikely to result in a sharper correction.
‘Most homeowners have already adjusted to higher borrowing costs since late 2022. Relatively few borrowers still need to refinance directly from rates below 2 per cent, while the labour market remains resilient.
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‘Together, these factors should keep forced sales low and limit additional downward pressure on prices.’
The average home has lost £5,314 in value since April, according to the latest figures from Nationwide Building Society. The average price fell from £278,880 to £273,566.
But other forecasts are more optimistic. Estate agent Connells Group expects UK house prices to rise by 1.5 per cent next year, followed by growth of 2.5 per cent in 2028 and a further 2 per cent in 2029.
What will happen to house prices from 2028?
Savills expects house price growth to accelerate during the second half of 2028, reaching 3.5 per cent across the year.
Oxford Economics, the advisory firm, forecasts that the base rate will begin falling from early 2028, improving affordability and increasing buyers’ borrowing capacity.
Annual growth is then expected to reach 5 per cent in both 2029 and 2030. Mortgage rates are forecast to bottom out, while six consecutive years of income growth outpacing house price growth should strengthen buyers’ purchasing power.
First-time buyers are expected to drive the recovery from 2028, with deposit affordability set to reach its strongest level since 2008.
Savills said looser mortgage stress testing, more flexible restrictions on high loan-to-value lending and the Government’s new Your First Home scheme should support activity. These measures could help first-time buyers overtake cash purchasers as the largest buyer group by 2029.
It added: ‘Home-mover activity is likely to remain subdued until better affordability unlocks pent-up demand from 2028 onwards.
‘Cash purchases are also expected to decline. Lower returns, increased regulation and higher taxation will keep buy-to-let activity below its long-term average and accelerate the shift towards larger, professional landlords.’
Demand for larger family homes is expected to remain strong. By contrast, building safety concerns, an oversupply of flats and affordability constraints are likely to continue limiting their appeal, Savills said.
| 2026 | 2027 | 2028 | 2029 | 2030 | 2031 | 5 years to 2031 | |
|---|---|---|---|---|---|---|---|
| UK house price growth (%) | 0% | -1.5% | 3.5% | 5% | 5% | 3% | 15.8% |
| UK house price growth (£) | £5,500- | £12,500+ | £18,500+ | £19,000+ | £12,000+ | £56,500+ | |
| CPI inflation | 3.7% | 2.4% | 1.4% | 1.9% | 1.9% | 1.9% | 9.8% |
| Bank of England base rate (at year end) | 4% | 4.25% | 3.25% | 3% | 3% | 3% | – |
| Assumed average mortgage rate (at year end) | 5.32% | 5.09% | 4.23% | 4% | 4% | 4% | – |
| Real GDP growth | 1.3% | 0.7% | 1.8% | 1.8% | 1.7% | 1.6% | 7.8% |
| Nominal income growth | 2.7% | 2.2% | 2.8% | 2.9% | 2.9% | 2.8% | 14.4% |
Where will house prices grow from 2028?
The strongest five-year house price growth is expected across northern England, Wales and Scotland, supported by relative affordability and improved economic prospects, Savills said.
It added: ‘In the three northern regions, average house prices remain below six times average earnings.
‘In London, that multiple is 11.3, meaning buyers need either above-average incomes or very large deposits to get on the property ladder.’
Cities including Bristol, Leeds, Liverpool and Manchester are also expected to record strong property price growth in the coming years, according to Savills.
London’s housing market is forecast to recover as well.
Savills said: ‘Prime London is expected to outperform later in the forecast period, supported by improved value after several years of price declines.’
