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House prices could rise by an average of 15.3% in the next five years

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Mon 18 Nov 2019

House prices could rise by an average of 15.3% in the next five years

House prices could rise by an average of 15.3% in the next five years, Savills estate agency predicted last week. Homeowners in the northwest of England would see the typical value of a home in the region go from £169,000 to £210,000: a 24% increase. In London, on the other hand, your home might be worth just 4% more, with the average price set to rise from £462,000 now to £480,000 by 2024.

If you think that’s an incredible variation, then, to paraphrase Harold Macmillan, you haven’t considered events, dear boy. Frankly, who knows what will happen in the next five years? The Britain of 2014 seems like a different planet from the one we inhabit today, so no one envies the researchers who were tasked with making the predictions.

They took what they knew about the fundamentals of Britain’s housing market, and projections from the global forecaster Oxford Economics, then added in the assumption that we agree a Brexit deal with the EU by the end of 2020.

So, what scenarios could make this forecast better or worse?

Article 50 extension or a deal with the EU
It wasn’t so long ago that we were all trying to work out what a no-deal Brexit might mean for house prices. Now forecasters are fixated on January 31, the date by which politicians should decide on the next course of action. If they can’t agree, this may result in yet another extension to the Article 50 deadline. “A prolonged period of political uncertainty is likely to suppress house-price growth and transactional activity,” says Lucian Cook, head of residential research at Savills.

If parliament does pass a withdrawal deal, don’t expect the tumult to subside. “It’s a false assumption that the uncertainty will go away,” says Tom Hall, chief economist at the property planning analyst Barbour ABI. “We will be discussing what tariffs Britain will have to accept and what our migration policy will look like instead.”

Soft Brexit or Remain
None of the election polls predicts a majority for a pro-remain or “soft Brexit” party — but if the polling is wrong or a second referendum is the price of a coalition deal, then most forecasters expect a modest boost to house prices. Hall says: “A small, stable increase is what I would expect over the next 6-12 months, assuming we decide to stay in.”

Bank of England raises interest rates
If the economy were to improve, the Bank might raise interest rates, which have been held at 0.75% for 14 months. The Savills forecast predicts wage growth of 3%, which could pave the way for market recovery. Inflation could also push up interest rates. Higher rates would encourage people to save, but homeowners could see their mortgage payments increase. Don’t hold your breath for a hike, though: “Rates are likely to stay low for a lengthy period of time,” Hall says.

Stamp duty is cut
“Any cut would soon be soaked up by increased property prices,” Cook says. “And, given the revenues at risk, it looks like a tempting vote-winner that would prove fairly hard to get past the Treasury.” This isn’t great for landlords, either: “The best they could hope for is some form of capital gains tax relief when they sell to a sitting tenant, while their biggest fear would be some form of rent regulation.”

Help to Buy is scrapped
The government’s flagship affordability scheme has been accused of pushing up house prices, but with the scheme set to end in 2023, all eyes are on a more palatable replacement. Hall says: “Labour has spoken about how Help to Buy supports more middle-class people [the National Audit Office found that more than 8,000 beneficiaries earned over £100,000], so if they get in, expect to see something more likely to solve the housing crisis from the supply side for working-class people.”