Savills has issued its forecast for the housing market for the next five years, and while it highlights some bright spots in the Midlands and the north, the picture for the London, south of England and buy to let markets is distinctly gloomy.
The agency, regarded by some observers as the most forthright and accurate of the property firms giving market forecasts, says average house prices across the UK are set to rise broadly in line with incomes over the next five years.
But the traditional north-south divide will turn on its head, with the Midlands, North and Scotland expected to see the strongest increases.
The range of house price rises it forecasts by region, from 2019 to 2023, varies from 21.6 per cent in the North West to merely 4.5 per cent in London; the South East and East of England regions are also in single figure growth over five years at just 9.3 per cent apiece.
These figures do not take into account inflation in the wider economy - annual consumer price inflation in September was 2.4 per cent, having eased slightly from 2.7 per cent in August.
“Brexit angst is a major factor for [housing] market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term. That legacy will limit house price growth, but it should also protect the market from a correction” says Lucian Cook, Savills head of residential research.
On transactions, Savills reports that since the June 2016 Brexit vote, sales have fallen 6.9 per cent to 1.145m and that they will decrease further over the next five years - albeit only by another one per cent.
Looking at the overall sales market, Savills says cash remains king with cash buyers now accounting for almost a third of all sales.
However, there is a bombshell delivered by Savills over mortgaged buy to let purchases, which it says will plummet 23 per cent by the end of 2023. “This will add to upwards pressure on rents, particularly in London, as investors look to lower value, higher yielding markets” notes the agency.
The agency also predicts that mortgaged first time buyers - the only buyer group to have expanded since 2007, from 359,000 then to 370,000 this year – will remain a strong group “despite the prospect of a less generous, more targeted Help to Buy.” However, even for this group Savills predicts a 2.7 per cent drop in deals by 2023.
It says mortgaged home mover numbers have fallen dramatically since 2007, from 653,000 to 370,000, but having adjusted for stress testing of borrowing, are expected to remain constant over the next five years.
On a regional basis outside of London and the south of England, there is slightly better news.
Savills says the Midlands, the North of England, Yorkshire and Humberside, Scotland and Wales all have the capacity for borrowing to increase relative to incomes, even allowing for higher interest rates, and this will support price growth ranging from 17.6 per cent to 21.6 per cent across these regions.
Key local economies – most notably the metros of Manchester and Birmingham – have the capacity to outperform their regions attracting both local and investor buyers, the agency says.
Wales will perform in line with the Midlands as it has done in previous cycles, but it is a hugely diverse market. There may be increased housing demand crossing over from Bristol once the Severn Bridge tolls are abolished.
Scotland, which has only recently returned to pre credit crunch peak, is performing strongly, particularly Edinburgh and Glasgow, which have seen prices rise 8.9 per cent and 7.0 per cent over the past year, respectively.
The Savills forecast is sharply contrasting with JLL’s more generally upbeat assessment of the market in years to come, as outlined earlier this week.