UK house prices will end the year 9.5 per cent higher than they started it, but this could mean that in London, the market could flat line in 2016, said property firm Savills said as it revised forecasts for the next five years.
The firm had predicted a 6.5 per cent increase in prices across the country in 2014, but in reality, the growth had “exceeded all expectations”. Because of this, it has revised its forecast for the current year as well as its prediction of total growth by the end of 2018 by the end of 2018 to 25.7 per cent from 25.2 per cent. The report’s five-year forecast assumes mortgage rates will have risen to an average of 5 per cent by 2018.
With London showing annual growth of around 20 per cent at the start of the summer, Savills said it expected the rate over the year to reach 15 per cent, up from the 8.5 per cent it originally forecast.
Savills said that strong growth this year has left less capacity for mid-term growth in some markets. Despite the strong performance this year, the five year forecast for London has remained unchanged at 24.4 per cent, and revised that for the south-east from 31. 9 per cent down to 31.6 per cent.
They said that over the five years to the end of 2018, it still expected prices to rise more quickly in the south-east and east of England than in the capital “as evidence mounts of the flow of buyers and equity out from the capital”. It added: “The midlands and the north have the potential to outperform thereafter, as has been seen in previous cycles.”
Research by Savills suggest that the cost of mortgage interest for owner-occupiers in Britain totals up to £33 billion, and a 2 per cent increase in interest rates would add £2,360 to the average annual mortgage bill in England and Wales, and £4,000 in London.
“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,” says Lucian Cook, head of residential research.