House Price Predictions for the Next 5 Years – UK Property Market 

When it comes to property, timing is everything. The UK property market has always remained a robust and sought-after investment destination. 

In the last few years, the property market has experienced ups and downs. In the wake of record-breaking house price growth, low interest rates and shifts in supply and demand, the property market saw a shift with the first annual drop in property prices in over ten years and rising interest rates. 

As we look ahead, what does the future have in store for the UK property market? We examine recent trends, the current state of the UK housing market and what investors can expect through to the end of the deade. 

Recent Housing Trends in the UK Property Market

Since the start of the century, the average price of a UK home has tripled. While partly driven by supply and demand due to a shortage of housing stock, a big factor in this rapid upward growth has been record-low interest rates. 

For more than a decade, mortgage rates in the UK have been rock bottom and as low as 0.1% as the Pandemic was at a peak. With interest rates so low, it has never been cheaper to borrow money to buy a home.

All that changed in 2023, when the market faced significant shifts due to rising interest rates, which have led to higher mortgage costs and moderated housing demand. 

Despite these challenges, the market has shown resilience, with home prices stabilising and mortgage approvals returning to pre-pandemic levels by early 2024. 

Market forecasts predict modest growth this year, while regional differences in affordability continue to affect housing trends.

2020 – 2021 Housing Trends in the UK Market

Before getting into house price predictions for the next 5 years, it’s important to examine recent trends in the market and the factors driving them. With the start of the Pandemic, low interest rates were joined by a few other important factors that powered house price growth in the UK: 

• Firstly, for many, savings increased over the series of lockdowns. 
• The Stamp Duty Holiday came into effect (which meant homebuyers could save up to £15,000 in taxes between July 2020 and June 2021)
• A shift in lifestyle trends saw many relocating away from main cities in search of more space spurring an active market.

While the first couple of months of 2020 saw a lockdown of the UK property market, upon its reopening, we saw prices reach never-before-seen heights:

• The average price of a UK home increased more than £30,000, reaching £250,000 for the first time. 
• Housing transactions reached 442,930 in the year to September 2021, the highest annual figure since 2014. 
• 2021 was also the strongest year for mortgage lending since 2007, with a record £316 billion of home loans given.

UK Regional House Price Variations

In the 18 months leading up to the rapid rise in inflation and interest rates, we began to see regional variations across the country. 

Average house prices in England reached £281,000, however, the northeast recorded the highest growth from August 2020 – August 2021 at 13% with average property prices of £149,000. 

London, meanwhile, recorded the slowest annual pace of growth over the same period, at 7.5% with record average property prices of £526,000. 

Liverpool saw one of the largest increases in the past year with 21.6% – some of the biggest price growth since before the Pandemic began. 

With homebuyers generally searching for greater space, the number of sales in locations outside of London took a great leap – up 35% in 2021. 

UK Housing Trends in 2022 

With the end of the stamp duty holiday and an increase in mortgage rates, many predicted that house price growth would slow in 2022. 

In 2022, robust demand continued, the post-covid economy began to rebound and buyer and seller confidence grew. After a frenzied market in 2021, things began to ease a little. 

As the country emerged from a series of lockdowns, a few notable trends emerged that would continue to impact the property market 

• The Popularity of Rural Areas 

Houses in attractive rural areas with good connections and amenities saw strong growth in 2022, especially as buyers become more confident in areas outside of London. Properties in the £500k to £700k price range continued to move fast and were highly sought after.

• Supply and Demand Imbalance

2022 saw an imbalance of supply and demand. Growing populations in a number of up-and-coming areas led to a significant increase in the number of buyers and not enough properties to meet demand. 

• Rising Interest Rates

In 2022, The Bank of England raised interest rates for the first time in three years due to concerns over inflation (which reached a decade-high of 5.1%). Higher borrowing costs combined with renewed Covid-19 uncertainty led to a slight low down toward the end of 2022.

The strength of the market surprised everyone in 2021, and with changing lifestyle trends and supply and demand patterns, many expected this to continue for the next few years.

The Housing Market in 2023 

With inflation, Brexit and the pandemic affecting the UK, housing prices significantly increased in the years leading up to 2023. This rise in property prices has made it extremely difficult for first-time buyers to purchase their own homes. 

After this period of strong growth in the past couple of years, the UK housing market faced a decline in 2023. Nevertheless, the limited availability of properties for sale kept prices high in some areas, despite the overall slowdown.

According to Natiowide’s house price index data, by of March 2023, the average price of a home in the UK was £257,122, which marked the largest yearly decrease since July 2009. This decline followed a sequence of monthly drops in the property market, with March 2023 witnessing a 0.8% decline and February a 0.5% decrease.

The UK Housing Market in 2024 and Beyond

After this period of strong growth in the past few years, the UK housing market experienced several significant changes in 2024:

1. Moderation in Mortgage Rates:
   • After the spikes in previous years, mortgage rates began 2024 at around 4.5%, with expectations stable due to anticipated interest rate cuts later in the year.
   • This relative stabilisation has helped improve market accessibility, although rates remain higher than the ultra-low rates seen in previous years, continuing to impact affordability.

1. Recovery in Sales Activity:
   • The number of mortgage approvals showed a significant recovery, returning to pre-pandemic levels, which has been a positive indicator for the housing market.
   • This recovery in approvals suggests increased buyer confidence and a rebound in market activity, supported by more stable economic conditions.
2. Stable House Prices with Modest Growth:
   • House prices have shown resilience, with modest growth expected in 2024, driven by a balancing act between demand and higher mortgage rates​​.
   • The market is adjusting to new economic realities, with price growth primarily concentrated in more affordable regions, which contrasts with the stagnation seen in higher-priced areas.
3. Continued Regional Differences:
   • Differences in the impact of economic conditions on housing markets continue, with regions like the South and East of England experiencing higher mortgage costs due to their relatively higher property prices.
   • These regional disparities are influencing buying patterns, with potential buyers looking for better value further afield or in less traditionally desirable locations.
4. Policy Impacts and Market Sentiment:
   • Anticipation of governmental policy changes related to the upcoming elections is creating cautious optimism in the market, as buyers and sellers await clearer signals on potential tax cuts and support schemes for first-time buyers.
   • The market’s response to these policy changes will be crucial in determining the trajectory for the rest of the year, with the potential to stimulate demand and impact overall market dynamics.

To date in 2024, the average cost of a house in the UK is approximately £282,000. The market in 2024 has shown a slight overall price increase from the previous year, although this depends on the region. 

Looking ahead, the UK housing market is expected to face several challenges and uncertainties:

• Modest Price Corrections: Experts forecast a possible decline in house prices by around 3% through 2024. This is seen more as a market correction rather than a crash, influenced by factors such as increased mortgage costs and the ongoing cost of living crisis​​.

House Price Predictions in the Next 5 Years

What does the next half-decade hold for the UK housing market?

Over the next half-decade, the UK housing market is expected to stabilise and gradually improve. In 2024, mainstream house prices are predicted to grow moderately by 3%, as inflation declines and mortgage rates decrease. By 2028, cumulative growth is expected to reach around 20%, with regional variations across the country.

Here are other key trends that will impact the UK market in the next 5 years:

• Gradual Price Growth and Stabilisation

Over the next five years, cumulative price growth is forecasted to reach approximately 20%, with regional variations across the UK. Areas like the North, Wales, and Scotland may see the strongest growth initially, while London could experience a slower recovery due to affordability pressures.

In 2024, the UK housing market remains a mixed landscape with varying regional trends. Areas like the North East and Scotland exhibit stronger price growth, while London faces a slower recovery due to affordability pressures. 

Some London boroughs like Ealing, Westminster, and the City of London saw modest growth, mainly due to improved transportation like Crossrail and continued investment. However, the overall London market still suffers from affordability challenges and has seen a year-on-year decline of 4.8%

Affordable regions outside London, like the North could see continued growth due to their comparative affordability and robust demand. However, affordability and inflation will shape broader market trends, impacting how quickly other regions recover.

• Rebound in Market Activity

Transaction levels are expected to recover and exceed one million annual transactions by 2026, signaling renewed market stability. This is partly driven by easing mortgage rates and a stronger economic outlook in many regions.

Buyers will likely return to the market cautiously but steadily, improving the market dynamics​ through 2028.

• Rising Demand in the Rental Market

The rental market is predicted to continue growing as housing affordability remains challenging for many potential buyers. Demand for rental properties is particularly high in major cities and regions with strong employment opportunities​. Shortages in supply and high competition among prospective renters may continue to drive up rental prices.

Knight Frank forecasts a 6.5% growth in rental prices for 2023 and an additional 5% in 2024. This growth trend is anticipated to extend across various regions but will be particularly pronounced in major urban areas where job opportunities and economic activities are concentrated

Factors contributing to this trend include the affordability challenges in the housing market, which compel many potential buyers to remain in the rental market longer than previously expected. 

This shift is particularly evident in prime locations like London, where high property prices continue to restrict homeownership. As rental markets are expected to strengthen further, driven by sustained demand and limited new supply.

• Narrowing the North-South Gap

Over the next 5 years, the current North-South divide in the housing market is expected to narrow, with some regions recording rises of almost 19% during the period. However, the price gap between the North-West and London is still expected to be significant. By the end of 2026, the average home in the North-West is expected to be £272,732, £266,417 in Yorkshire and £713,987 in London.

Where are the Best Places in the UK to Invest in Property? 

Looking at the five-year forecast and today’s property prices, where are some of the best places to invest in UK property right now? Property market projections mean that Investors looking for regions with positive potential for price growth can expect to see good results in the Northern Powerhouse cities. 

Properties in Liverpool and Manchester are expected to experience strong growth, and the wider North West is expected to see over 18% growth in house values in the next five years. Properties in these cities in particular are still relatively affordable, and with the right property, investors can capitalise on decent capital gains. 

Is the Housing Market Slowing Down?

Outside London, the UK housing market remains relatively resilient, with some regions continuing to experience moderate price growth. Areas like the North West, Wales, and Scotland are expected to maintain steady demand due to comparative affordability and strong local economies. 

However, rising mortgage rates and inflation have tempered buyer enthusiasm nationwide, resulting in fewer transactions and a shift towards renting as many potential homeowners opt to stay in the rental market longer.

• London Housing Market in 2024

In 2024, London’s housing market is experiencing a noticeable slowdown, marked by marginal increases in home prices. Factors such as elevated mortgage rates and economic uncertainty have dampened buyer enthusiasm, contributing to reduced demand and longer market listing durations for properties.

• Trends in Prime Central London

The slowdown is particularly stark in prime central London, where the housing market has not rebounded as robustly post-pandemic. The area is witnessing subdued activity, characterised by a lack of international buyers and cautious domestic investors. Reports suggest minimal growth in property values for 2024, with some neighbourhoods even seeing declines.

Will there be a House Price Crash?

While concerns about a potential housing market crash in the UK have been circulating, most experts are suggesting that 2024 will be a year of correction rather than collapse. Predictions point to house prices likely dropping between 2% and 5%, a soft decline driven by inflation, high mortgage rates, and the cost of living crisis.

The Office for Budget Responsibility forecasts a 4.7% price drop this year, while other analysts anticipate a more moderate decrease. However, there are no signs of a significant crash due to resilient factors like steady employment rates, rising mortgage approvals, and continued buyer interest, particularly in the North East and North West, where prices have continued to rise.

London remains a focus due to its historically high prices and substantial drops of nearly 5%, but regions like the North East are showing growth of up to 5.6% and 2.9%, respectively. 

The overall market remains regionally varied, and while some downturns will occur, strong employment, a potential rebound in mortgage rates, and cautious optimism suggest that 2024 will be marked by stabilisation rather than catastrophe.

What are the Primary Challenges Facing First-Yime Homebuyers in the Current Market?

Getting onto the housing ladder is still a challenge for first time buyers.

•  Affordability Issues

First-time homebuyers face significant hurdles due to skyrocketing property prices in many regions. Despite government incentives, high costs mean many cannot afford deposits or qualify for sizable mortgages. This situation is particularly challenging in major cities like London, where prices remain prohibitive.

• Rising Mortgage Rates

With mortgage rates stabilising around 4.5% in 2024, securing affordable financing remains difficult for first-time buyers. The recent rise in interest rates has resulted in higher monthly payments, stretching budgets for those entering the market. Consequently, many potential homeowners are choosing to continue renting instead of purchasing.

• Supply Shortage

A continued shortage of available properties exacerbates competition among buyers, driving prices up and reducing options. New builds have not kept pace with demand, leaving first-time buyers with fewer affordable options. This imbalance is particularly evident in desirable areas near major cities and emerging economic hubs.

• Cost of Living 

The ongoing cost-of-living crisis places additional strain on first-time buyers as rising inflation impacts household budgets. Many struggle to save for deposits or pay for homeownership expenses due to increasing utility bills and daily living costs. This challenge is particularly acute for those already contending with student loans or other debts.

How Does the Rental Market’s Growth Influence Long-Term Trends in Homeownership?

The growth of the rental market significantly impacts long-term trends in homeownership by shaping affordability, influencing investment strategies, and altering preferences.

• Demand-Driven Rent Increases

The growing demand for rental properties, particularly in urban areas, has driven up rental prices. Young professionals and families flock to cities for better employment opportunities and lifestyle benefits, increasing competition for rental units. As a result, landlords are empowered to raise rents, knowing they can easily find tenants willing to pay higher rates.

• Changing Perception of Homeownership

With renting becoming the norm due to affordability issues, attitudes toward homeownership are evolving. Some renters now see homeownership as less attainable and have shifted their focus to renting long-term. This shift challenges the traditional notion that owning property is a key life milestone.

• Impact on Property Investment Strategies

Investors are adjusting their strategies in response to a burgeoning rental market, prioritising buy-to-let properties over owner-occupied investments. The expectation of sustained rental growth makes the rental sector attractive to landlords seeking steady returns. This strategic shift is reshaping property development patterns, with more focus on rental units.

• Rising Demand for Rental Housing Supply

To meet the rising demand, developers are increasingly focusing on building new rental properties, particularly in high-demand urban centres. Build-to-rent developments are becoming more popular, promising purpose-built, high-quality rental accommodations. This growing supply is designed to appeal to long-term renters, offering flexible leasing and communal amenities.

What Government Policies Could Influence the Housing Market Over the Next Five Years?

In recent years, UK government policies have significantly shaped the landscape for landlords and property investors. Changes such as phasing out mortgage interest relief, introducing a 3% stamp duty surcharge on additional properties, and tighter lending criteria have squeezed landlord profits and influenced investment strategies. 

These legislative shifts aimed to cool down overheated markets and increase homeownership rates among residents, but they also led to some landlords exiting the market or restructuring their portfolios.

Looking ahead, potential government policy changes could continue to impact the housing market, affecting both homeowners and renters. Here are five areas where new policies might influence property investors:

• Revised Stamp Duty Land Tax (SDLT) Relief

The government may consider adjusting stamp duty thresholds or offering new reliefs to stimulate market activity, especially in sluggish economic times. For investors, any reduction in upfront costs can improve the financial viability of acquiring new properties. Enhanced relief for buying properties in underdeveloped or regeneration areas might encourage investment in these regions, diversifying investor portfolios.

• Expansion of Help to Buy or Introduction of New Buyer Incentives

Extending or introducing new schemes similar to Help to Buy could increase first-time buyer activity in the market. While this might initially raise property prices due to heightened demand, it could lead to a more stable market with a steady flow of new entrants. Investors focused on new builds might find additional opportunities, as these schemes often target newly constructed homes.

• Increased Investment in Affordable Housing

Government commitments to fund affordable housing developments can stimulate significant shifts in the property market. For investors, this could mean opportunities in partnerships with the public sector or investment in social housing projects, which often offer stable, government-backed returns. A boost in affordable housing stock can alleviate rental demand pressures, stabilising rental yields across broader areas.

• Changes in Rental Legislation

Proposals to enhance tenant rights, such as longer tenancy agreements or restrictions on rental increases, could affect landlords’ returns. While these changes aim to make renting more secure and attractive for tenants, they could lead to higher operational costs and longer vacancy periods for landlords. Investors will need to consider these factors carefully when calculating potential yields and deciding on investment locations.

• Environmental Regulations and Green Incentives

As the UK aims to meet its environmental targets, new building regulations could require property upgrades to meet higher energy efficiency standards. This could mean significant investment from landlords to ensure their properties comply. 

However, incentives such as grants or tax relief for making these upgrades could offset some of the costs and attract investors towards properties with higher energy ratings, potentially commanding higher rents and attracting eco-conscious tenants.

​​How will Lifestyle Trends Impact the Housing Market in the Next 5 Years?

The pandemic brought vast lifestyle changes that dramatically impacted the UK’s housing market. Remote working, lockdowns, and health concerns led many to reconsider their living arrangements, with increased demand for spacious homes, access to green spaces, and properties outside of densely populated urban areas. 

This shift accelerated trends that will continue shaping housing preferences over the next five years, as individuals and families seek properties that align with their evolving lifestyles.

• Urbanisation and Young Professional Hubs

Major cities will continue to attract young professionals drawn by career opportunities, creating burgeoning urban centres beyond London. Cities like Manchester, Birmingham, and Bristol are expected to see growth in demand for smaller, conveniently located apartments. Developers are likely to invest in mixed-use developments, catering to the lifestyle demands of a younger, socially active demographic.

• Rise of Hybrid Work and Co-Living

The shift to hybrid work arrangements will result in demand for properties that blend personal and professional spaces. Suburban and regional areas will attract workers seeking a quieter lifestyle but with access to good transport links and amenities. This trend will also encourage the growth of co-living spaces where residents share communal facilities, providing flexible living options for digital nomads and remote workers.

• Sustainable Living Preferences

As environmental awareness grows, sustainable living will significantly influence housing preferences. Many buyers will prioritise homes with energy-efficient features and proximity to green spaces, driving investment in eco-friendly developments. Regions with existing infrastructure to support sustainable living, like access to public transport or cycling networks, will become increasingly desirable.

Should I Buy a House now or Wait Until 2025 in the UK?

As of 2024, the UK housing market is experiencing modest growth with stable mortgage rates expected to remain around 4.5%. However, market analysts predict slight corrections in house prices, suggesting a potential decline of around 3% by the end of the year, influenced by factors such as increased mortgage costs and the ongoing cost of living crisis.

Looking ahead to 2025, the UK housing market is expected to stabilise further, with predictions of a gradual improvement in economic conditions and possibly lower interest rates as inflation declines. This scenario could create more favourable conditions for buying a house, with potentially lower property prices and improved affordability. If these forecasts hold true, waiting until 2025 might offer a strategic advantage, allowing buyers to capitalise on a more stable and buyer-friendly market.

Will House Prices Drop in a UK Recession? 

In general, during a recession, housing markets tend to experience a drop in prices due to decreased consumer confidence and spending power, leading to reduced demand. Historically, UK house prices have shown declines during economic downturns as buyers become scarce and sellers are forced to lower prices to attract interest.

For the current situation in the UK as of 2024 and looking into 2025, forecasts suggest a continuation of this trend. Predictions for 2024 indicate a decline in house prices by about 3% to 4.7%, reflecting uncertainties surrounding economic recovery and the lingering effects of high mortgage rates

However, by 2025, the market is expected to rebound with house prices projected to increase by 3.5%, and even stronger growth anticipated in subsequent years as economic conditions stabilise and mortgage rates potentially decrease​. 

If you are considering buying a house and are not under immediate pressure to do so, it might be advantageous to wait until 2025 when the market is expected to start recovering, potentially offering more stability and better growth prospects for property values.

Are UK House Prices Falling in 2024? 

UK house prices are expected to fall in 2024. Forecasts from various sources, including the Office for Budget Responsibility (OBR) and real estate experts, predict a decrease in house prices due to ongoing economic pressures and high mortgage rates. The OBR has forecast a drop of around 4.7% across the country, reflecting the impact of continued economic uncertainty and the cost of borrowing.

This downward trend is a correction from the significant price increases seen during the pandemic and is influenced by factors like the cost of living crisis and changes in the interest rate environment. 

Estate agencies and market analysts indicate that prices may fall by about 3% to 5% throughout the year, which could potentially create a more buyer-friendly market towards the end of the year and into 2025.

For some landlords, lower house prices in 2024 could present opportunities to buy properties at a good deal, and a growing rental market offers strong potential for buy-to-let investors. The rental market is projected to remain on a growth trajectory through 2025, fuelled by a persistent demand-supply imbalance and changes in lifestyle preferences and house prices look to be set to increase over the next half-decade. To find out more about investing in property in the UK, get in touch.