Britain’s housing market recovery ‘set to be delayed until 2028’

Britain’s housing market is set to face a delay in its recovery until 2028 as mortgage rates put pressure on activity and prices, according to a new forecast.

Property firm Savills said it expects house prices to rise by 15.8 per cent – or £56,500 in cash terms on average – over the five years to 2031, with values starting to recover from the second half of 2028.

But next year the average house price could fall by £5,500, they estimate, as weak demand continues to see sellers need to drop their asking prices to move on.

The strongest five-year house price growth in percentage terms is forecast across northern England, Wales and Scotland, supported by relative affordability and economic prospects, according to the prediction.

Meanwhile, London prices are forecast to rise only 8 per cent across that period.

Recent property market data showed an estimated 94,800 residential sale completions across September, down 4 per cent compared to the same period last year.

Sarah Coles, head of personal finance at AJ Bell, explained that rising mortgage rates – and with the Bank of England expected to hike the Bank Rate on Thursday too – are likely to see the situation continue to worsen.

“A sluggish September for the property market was actually flattered by a brief period during the summer when the clouds lifted. However, the gloom has since descended once again, and mortgage rates have risen, so we could see sales fall in the coming months,” she said.

“These figures reflect sales which were mostly agreed between two and four months earlier.

“Expensive mortgages, unaffordable property and an uncertain world are likely to persuade some buyers to pause. For first-time buyers this is an opportunity to revisit your position. The more you can build your deposit, the less likely you are to end up over-stretching when you eventually come to buy. If you have a Lifetime ISA, you can make the most of this year’s allowance and the government bonus – and take advantage in the coming financial year too.”

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

Invest at least £100 in Stocks or ETFs of your choice. Get fractional shares worth £50!

Terms and conditions apply.

Go to website

ADVERTISEMENT

The report by Savills also said that changing buyer demographics will support demand for bigger family homes.

It expects house prices to drift lower over the remainder of 2026 and through 2027, resulting in a “peak-to-trough” decline of around 3.0%.

The firm said that average mainstream house prices are forecast to fall by 1.5% across 2027, as the prolonged conflict in the Middle East weighs on sentiment and keeps mortgage rates higher for longer.

However, improving economic prospects and mortgage affordability are expected to support a recovery from 2028.

Emily Williams, director of residential research at Savills said: “The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage rate relief, which will weigh on buyer sentiment and affordability.

“We expect this will suppress activity and put pressure on prices next year.

“But this is unlikely to trigger a sharper correction.

“Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.

“Together, these factors should keep forced sales low and limit further downward pressure on prices.”

Savills expects first-time buyers to lead the recovery from 2028, helped by deposit affordability and government initiatives.

House price growth is expected to accelerate during the second half of 2028, according to Savills, reaching 3.5% across the year.

House price growth is then forecast to reach 5.0% in both 2029 and 2030, with a 3.0% increase in 2031.

Dan Hill, residential research associate at Savills said: “Markets combining relative affordability with strong employment and investment prospects are expected to outperform, including Manchester, Leeds, Liverpool and Bristol, alongside well-connected commuter locations offering better value than their surrounding regions.

“Property type will also remain an important driver of performance.

“Demand for larger family homes continues to be supported by flexible working patterns and changing buyer demographics.”

Here are the cash changes in the average house price expected by Savills in the years ahead:

And here are the overall percentage increases in average house prices predicted by Savills in percentage and cash terms over the years to 2031:

Additional reporting by PA