House Prices to Increase 25% by 2018?

Mainstream house prices will increase by an average of 25 per cent over the next five years, according to a new report. Savills’ five-year forecast showed there is much confidence in the market, which will drive 17 per cent growth in the next three years alone. Rises would be even higher too, were it not for the downwards pressure caused by external factors. Lucian Cook, Savills head of UK residential research, said: “Total five year house price growth will be capped by earnings growth, given the likelihood of interest rate rises that will erode mortgage affordability.”

The south and east of England will continue to have the strongest growth, but all regions will in fact outperform London. “Though we expect London to continue to outperform in the short term, it is unlikely to continue to do so indefinitely,” Mr Cook explained. “The capital has already been the strongest performing region of the UK since mid 2005 during which period prices have risen by 37 per cent, compared to just eight per cent across the country as a whole.” This has led to a massive divide between values in London and the rest of the UK – a gap that needs to be closed.

A petering off of growth in the capital is, therefore, no bad thing and as confidence improves, buyers are likely to look outside of London to achieve better value for money. However, Mr Cook stresses that the North is unlikely to reap the benefits of the this anytime soon, with growth coming for it much later in the cycle.

It’s not just prices that are locked on an upwards trajectory either and transactions levels are expected to increase by 27 per cent over the next five years. Yet, this still leaves them 24 per cent below a fully functioning market. Cash will still be important when it comes to buying too, but any meaningful rise in transactions will depend on improvements in mortgage lending.

Can house prices really continue to rise at this rate? Take a look at 15 Facts That Decide Your House Price