Which region will see biggest house prices growth by 2028? What the latest Savills forecast says

House prices will increase over the course of 2024 despite the affordability challenges facing buyers, Savills has predicted.

In its latest five-year forecast for the housing market, the property firm said it believes homes will become 2.5% more expensive this year. This marked a swing of more than five percentage points from its previous set of predictions, which anticipated UK sold prices would shed 3% of their value over the 12-month period.

This more positive outlook comes despite the housing market facing major challenges, including near-record mortgage rates and the impact of inflation on personal finances. The latest monthly house price index (HPI) from Halifax showed there was no customary spring bounce for sellers in April, while separate research by the same bank has found buyers are opting for smaller properties to get on the housing ladder.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Mortgage rates have climbed by around half a percentage point over the past two months, and are not expected to reduce until the Bank of England cuts its interest rate. No cut is expected at May’s Monetary Policy meeting, but analysts expect the UK central bank could act in June or August - a move that is expected to lead to a fall in mortgage rates.

Stronger house prices outlook expected over next five years

Savills said it expects the average UK house price will climb back towards the record levels seen in August 2022 later this year. It said growth of 2.5% would mean the average home would cost £292,000 by the end of the year. This scenario is based on interest rates being cut to 4.5% - a prediction made by Oxford Economics - as well as Savills analysis of Nationwide data.

While GDP growth is expected to remain weak at 0.6%, incomes will nominally rise by 2.7% over the 12 months of 2024. In turn, this would allow an extra 30,000 property transactions to take place compared to the 1.02m seen during 2023.

The property firm then expects the average UK house price to surpass the £300,000 barrier in 2025 as the base rate declines yet further to 3.5%, and another 90,000 property sales occur. House price inflation is then expected to hit at least 4.5% a year until 2028, peaking at 5% in 2027.

Should this scenario occur, the average property would be 21.6% (£61,500) more expensive than it’s set to be this year - a large improvement on the 17.9% increase predicted in Savills last forecast. This situation would be helped by 8.9% GDP growth, which would contribute to income growth of 16.4% over the period.

These figures mean there has been a marked improvement in Savills’ sentiment since November 2023 when it published its last outlook. According to Lucian Cook, head of residential research at Savills, this is because mortgages are now less expensive and less volatile than they were last year.

He said: “In November, a 75% LTV mortgage from Nationwide on a two-year fix cost 5.34%, and mortgage approvals were down below 50,000 per month. The higher cost of debt dampened demand and put downward pressure on prices.

“However, the highly competitive nature of the mortgage market has meant that lenders have fairly aggressively priced in the prospect of cuts in bank base rate, causing buyer confidence, and prices, to recover somewhat. The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.”

Cook pointed to the typical Nationwide two-year fix now being half a percentage point lower than that seen in November, and mortgage approvals climbing above 60,000 across both February and March, as evidence of an improving market picture. However, he added that there are potential stumbling blocks for the housing market that could derail the figures in Savills’ forecast.

“Continued uncertainty in the Middle East and higher than expected US inflation have meant that swap rates have continued to rise. Consequently, we are unlikely to see a further meaningful fall in mortgage rates this year, with the potential for short term fluctuations in the cost of debt and house prices, as seen over the past week,” he said.

“Similarly, an Autumn election could impact sentiment towards the end of the year, though polling suggests that most buyers and sellers will have already factored in a change of government, which will minimise the impact."

Which region will have strongest growth in house prices?

In recent HPIs, we’ve seen a growing split between the price growth performance of properties in northern areas compared to southern parts of the UK. Savills expects this trend to continue over the next five years.

Its forecast reckons the North West will see the strongest growth of any region, with the average home seeing price inflation of 28.8% over the period. Yorkshire and the Humber (+28.2%), Wales (+26.4%) and Scotland (25.8%) would also record strong increases.

At the other end of the scale, London is expected to grow the slowest. House prices in the capital are expected to rise 14.2% over the period. The East of England (+18.1%), South East (+18.2%) and South West (+18.7%) are also expected to see more subdued growth than up north. Meanwhile, both Midland regions and the North East are expected to record growth in excess of 22%.

Cook said this was because Savills expects affordability problems could “become a factor” by 2028 - an issue that would particularly hit “already stretched” markets in more expensive parts of the UK.