In November of last year, Savills projected a -3.0% average decline in house prices for 2024, with housing transactions hovering around 1 million for the year. At the time, indicators such as mortgage approvals and buyer inquiries were subdued. However, the landscape has shifted since then.

Contrary to Savills' initial forecast, the average UK house price experienced a net increase of +1.1% in the first quarter of 2024, according to Nationwide data. Mortgage approvals surged past 60,000 in February for the first time since 2022, and buyer inquiries rebounded into positive territory.

This unexpected recovery is primarily attributed to a reduction in mortgage rates, driven by a competitive lending environment and optimism about future interest rate cuts. Despite the Bank of England's base rate remaining steady at 5.25%, the cost of a two-year fixed-rate mortgage from Nationwide has decreased to 4.84%.

While the resurgence in market activity has bolstered buyer confidence, it's important to exercise caution.

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Remaining Considerations

Despite the positive momentum, uncertainties persist. The pace of future interest rate cuts, economic growth projections for 2024, and the potential impact of a looming general election are factors that temper Savills' short-term expectations. Consequently, Savills' outlook for house prices this year has shifted from anticipated declines to modest increases in the low single digits.

Looking ahead, Savills' medium-term forecasts remain largely unchanged. Affordability concerns continue to loom large, exerting a moderating influence on price growth.

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In-depth Analysis

Savills anticipates that the positive trajectory of house price growth will persist through 2024, albeit at a more subdued rate of around 2.5%. Survey data reflects a shift towards increasing buyer activity, yet rising levels of new property listings suggest a delicate balance between supply and demand.

Moreover, inflationary pressures and geopolitical uncertainties could influence the trajectory of interest rates, impacting mortgage affordability. The upcoming general election adds another layer of uncertainty, potentially dampening market sentiment.

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Long-term Outlook

Looking further ahead, improved economic fundamentals and gradual interest rate cuts are expected to support sustained growth in housing prices. Oxford Economics' revised forecasts for GDP and wage growth over the next five years indicate a favourable environment for the housing market.

As such, Savills' five-year UK forecast has been adjusted upwards to reflect a projected growth of 21.6%. However, concerns about affordability, particularly in London and the South East, underscore the need for continued vigilance.

In conclusion, while recent developments have defied Savills' earlier projections, a nuanced understanding of market dynamics is essential for navigating future uncertainties.

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