UK property prices will fall next year but the medium term outlook is positive with price increases of almost 30% by 2015, according to analysts.
The first forecasts for the next few years indicate that cash rich buyers that have been driving the price increases in 2009 will disappear in 2010. A general election and rising unemployment are among the factors that will put a damper on the residential market, the experts predict.
Savills today released its forecasts for both the prime and mainstream UK housing markets for the period 2010 to 2015.
‘The price growth of 2009 took most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal,’ explained Yolande Barnes, head of residential research at Savills.
As a result prices are expected to soften in 2010 as pent up demand from cash rich buyers will begin to be satisfied and stock shortages will ease. This could result in a brief period of headline grabbing price falls of up to 6.6% around the middle of the year point, with modest growth of around 2.7% in 2011, Barnes added.
The longer term prognosis though is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% from 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.
The prime market is expected to do better with price falls of around 1% in 2010 and an earlier return to sustained growth. Prime central London price growth is expected to total around 18% and 35% over the next 3 years and 5 years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.
The latest forecast from Cluttons points to price increases of around 2% in 2010 in a best case scenario but falls of up to 5% if the economy performs badly. Central London prices are expected to fare better, with a slow growth of up to 3% next year.
‘We expect stock to increase in 2010, but with vendors’ pricing expectations still high, this may leave optimistic buyers frustrated, especially where mortgages are a significant part of financing purchases and restrictions remain tight on mortgage loan-to-values,’ said Andrew Stanford, head of Cluttons’ residential professional division.
Prices are expected to rise more from 2011, with the three following years seeing prices up by 3% to 4% per annum. ‘As interest rates remain low, the mortgage market will gradually recover. Values will be attractive for foreign currency buyers in London and good for UK buyers with equity to invest,’ he added.