The Resilient UK Housing Market
Despite the economic turmoil caused by Covid-19, recession, and soaring mortgage rates, the UK’s housing market has defied expectations of a dramatic downturn. While the market has cooled slightly since reaching a peak in 2022, forecasts now suggest a return to strong growth. Savills predicts the average UK house price will increase by £61,500 over the next five years, from £285,000 to £346,500, marking a 21.6% rise. This year alone, they expect a 2.5% growth, a significant upgrade from their previous forecast of a 3% drop made during the recession.
This optimistic outlook is based on the expectation that the Bank of England will reduce the Bank Rate from 5.25% to 2% by 2028, making mortgages more affordable and boosting borrowing capacity. Lucian Cook of Savills notes that an improving economic environment and gradual interest rate cuts will drive this growth, despite potential market headwinds such as the upcoming general election.
Historically, the UK’s housing market has shown long-term resilience, with inflation-adjusted prices rising by 365% over the last 70 years. Although this growth has been interrupted by significant downturns, such as the early 1990s recession and the 2008 financial crisis, the market has always rebounded strongly.
A crucial factor in the market’s current stability is the shift towards longer mortgage terms, which has helped keep monthly repayments manageable and prevented a surge in repossessions. Additionally, low unemployment rates and cautious lending practices have further insulated the market from economic shocks.
Here’s a graph showing the UK mortgage rates from 2020 to the present, including future predictions up to 2028.
However, the chronic undersupply of housing remains a critical issue. The UK has built significantly fewer homes than needed, particularly in high-demand areas like London and the South East. Despite political pledges to boost housebuilding, such as Sir Keir Starmer’s promise to deliver 1.5 million new homes in five years, increasing supply sufficiently to impact prices will be a slow and challenging process.
In summary, while there are potential risks, the UK’s housing market is expected to continue its upward trajectory, driven by improving economic conditions, favorable interest rates, and a persistent supply-demand imbalance.
