House Price Predictions for the Next 5 Years
Since the onset of the pandemic, house prices have seen a rapid rise. However, given the ongoing increase in the cost of living, what can we expect in terms of future house price predictions for the next 5 years?
When it comes to UK property, timing is everything. The UK property market has always remained a robust and sought-after investment destination.
And with the current economic turmoil, it’s even more important to get the right info before making any decisions.
We take a look at recent trends, the current state of the UK housing market and what investors can expect through 2027.
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 house price growth has been record-low interest rates.
As inflation rates reach their highest point in 41 years and the Bank of England responds by raising interest rates, the question remains whether those in the market to purchase a home can expect further increases in house prices.
The answer is complicated. Experts agree that the rise in interest rates will slow the rate of house price growth, but there are other factors that could lead to a surge in prices.
2020 – 2021- 2022 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 the upward trend of house prices in England. Such as:
- 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 with many relocating away from main cities in search of more space spurred 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.
Early 2023 Housing Data
- The average price of a UK home increased 6.3% in the 12 months to January 2023, reaching £290,000.
- Housing transactions in February 2023 reached 90,340, which is 18% lower than in February 2022.
- The number of transactions was also 8.5% lower than in January 2023.
- Changes to Stamp Duty rates. Read more about these changes here.
UK Regional House Price Variations
While the overall trend of the past 18 months has seen house prices on the rise, property data indicates regional variations across the country.
The UK’s average house price is currently £290,000, however, the price of houses in the Northeast has decreased by £3,720 or 2.3% in the past month. However, there has been an increase of £11,350 or 7.6% in the average house prices in the North East during the last 12 calendar months.
As of the first quarter of 2023, the main markets in London have shown stability with no significant fluctuations according to Savills. The average values have remained almost unchanged with a slight increase of 0.1% compared to the decline of -1.2% recorded in the last quarter of 2022, leaving the prices at the same level as they were a year ago.
As of March 2023, the median price of homes in Liverpool has increased by 6.3% from the previous year, with a selling price of approximately £220K. The average time on the market for a home in Liverpool has decreased to 9 days, as compared to 18 days in the previous year.
UK House Price Forecast for 2023
With inflation, Brexit, and the pandemic affecting the UK, housing prices have significantly increased in the past few years. This rise in property prices has made it extremely difficult for first-time buyers to purchase their own homes. As of July 2022, property prices in the UK have reached an all-time high, with the average asking price being £369,988, indicating a 9.3% increase from 2021, as reported by Rightmove.
And now after this period of strong growth in the past couple of years, the UK housing market is currently facing a decline. Especially in prices due to factors such as rising interest rates and the cost of living crisis. Nevertheless, the limited availability of properties for sale is still keeping prices high in some areas, despite the overall slowdown.
According to Natiowide’s house price index data, as of March 2023, the average price of a home in the UK is £257,122, which marks the largest yearly decrease since July 2009. This decline follows a sequence of monthly drops in the property market, with March witnessing a 0.8% decline and February a 0.5% decrease.
The falling property prices, along with rising interest rates, may lead to more expensive mortgages for relatively affordable houses. This shift towards prioritizing affordability could become more prevalent in the UK as property prices continue to decline in 2023.
Why are House Prices Falling in 2023?
In general, there are several factors that contribute to this trend, and here are four of the most relevant ones for 2023:
- First, an economic downturn can lead to a reduction in demand for housing, which can result in a drop in house prices.
- Second, buyers are now prioritizing affordability over living in historically expensive regions like central London or desirable rural areas. As a result, a lack of demand could cause house prices to decrease.
- Third, higher interest rates make borrowing more expensive, which means fewer people can afford to buy homes, leading to a drop in demand. Despite falling house prices, mortgages are becoming more expensive due to the increase in interest rates.
- Fourth, the general perception that the housing market is in a downturn, could lead to a continual slump and a decrease in demand for housing, leading to reduced house prices. However, certain areas may be affected more than others.
Housing Market Trends For 2023?
Now what does this mean for property investors?
According to Zoopla, it seems like people are more interested in buying affordable homes in urban areas than in coastal or rural areas in 2023. Unfortunately, buying a home in central London is becoming more and more difficult due to high prices.
However, some areas in the UK that have reasonably priced homes and stable employment opportunities may experience growth because of this trend.
The reason for this shift towards urban areas is that expensive housing markets have shown that homes are selling for less than their asking price. As a result, previously popular areas are losing their appeal, and people are now looking for more affordable options.
While affordable urban areas may not be affected as much as other regions in terms of house prices, it’s still important to keep in mind that higher interest rates may still have an impact on these affordable markets.
House Price Predictions for the Next 5 years
What does the next half-decade hold for the UK housing market? Future projections for the UK housing market are optimistic. By 2026, Savills predicts that house prices will increase more than £40,000 to reach £370,785.
Something impacting house price predictions for the next 5 years especially, is the remote work trend. As the remote working trend is set to stay, we expect relocating to remain as people go in search of more space in areas outside of cities. The imbalance between supply and demand is likely to continue to spur the increase in house prices too. While the environment for first-time buyers should remain challenging over the coming years.
The government’s recent pledge to build 300,000 new homes a year, this could help to reduce the gap between supply and demand in the UK housing market. But, until these new homes are built, we expect house prices to remain on an upwards trajectory.
Narrowing the North-South Gap
Over the next 5 years, the current North-South divide in the housing market should narrow. With some regions recording rises of almost 19% during the period. However, the price gap between the North-West and London should still be significant. By the end of 2026, the average home in the North-West should be £272,732, £266,417 in Yorkshire and £713,987 in London.
It is expected that the North-West will experience the highest levels of growth in the region, with a forecasted rise of 19.1%. This is followed by Yorkshire and the Humber at 15.2%, and the North East at 14.3%. London should have a much more modest increase of 6.4% over this time period. In comparison to other regions, this is relatively low, but still higher than inflation, meaning that Londoners are likely to see an overall increase in their real wealth over this period.
Where are the Best Places in the UK to Invest in Property?
Looking at the five-year UK property forecast and today’s UK property prices, where are some of the best places to invest in UK property right now? Property market predictions 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 to 2026. Properties in these cities, in particular, are still relatively affordable, and with the right property, investors can capitalise on decent capital gains.
In addition, rental yields in the North West should remain healthy. Which will make it a great place for buy-to-let investors.
The cities of Leeds and Sheffield are also potential hotspots for property investors. According to the latest property market predictions, house prices in these cities should rise by over 15% in the next five years. With current prices still relatively low compared to other parts of the UK, investors can take advantage of strong capital growth without breaking the bank.
Overall, property market forecasts point towards a positive outlook for UK property investments over the next few years. Investors who focus on Northern Powerhouse cities such as Liverpool, Manchester, Leeds and Sheffield can expect to benefit from good capital growth and solid rental yields.
Is the Housing Market Slowing Down?
2021 was a record year for the UK housing market, with house prices reaching never-before-seen heights. The combination of low-interest rates, a stamp-duty incentive for much of the year and a widespread revaluation of housing needs presented unique market conditions. Although, 2023 brought a lot of turmoil to the market. In 2022, interest rates went up quite fast, which could possibly lead to a further drop in home prices in 2023. The trends in home prices also rely on whether the supply can meet the demand.
Will there be a house price crash?
Numerous specialists believe that the possibility of a housing market downturn occurring in 2023 is low, primarily due to the substantial equity that many homeowners have acquired in their residences. Nevertheless, the primary concern is affordability, as elevated interest rates and inflated home values have created obstacles for prospective first-time buyers looking to purchase a home.
When it comes to house price predictions for the next 5 years, the UK market is expected to see strong growth. Investors would do well to look to the north of England, areas with growing populations where demand is outstripping supply and rural areas with good connections and amenities that may be popular with those looking for more space.