Residential Property Focus
2015 Issue 3

Residential Property Focus
Dusting Off The Crystal Ball

5 November 2015, by Lucian Cook

Interest rates and mortgage regulation will shape the UK housing market in the next five years.

We have reached the time of year when we dust off our crystal ball to formulate our housing market forecasts. No longer is this just a case of saying we think UK house prices will go up or down by x% next year.

To provide a meaningful market forecast it is important to establish where different markets are in the cycle and what their capacity for growth is over the medium term.

 

It is also increasingly important to understand how prices interact with transactions and households’ ability to get on or trade up the housing ladder in different parts of the country.

Twelve months on

Last year we were consumed by what the mortgage market review would mean. Twelve months on and its effect has become a little clearer.

Mortgage approvals and consequently transaction levels appear to have reached a plateau, as the affordability tests on borrowers and loan-to-income restrictions on lenders limit the amount home-buyers can borrow. Those seeking to get a new mortgage are being constrained by the higher interest rate assumptions adopted in the regulatory stress testing of affordability.

This means what happens to interest rates going forward is critical to our outlook for the market, a subject which we have addressed in our article Maintaining Balance.

Mortgage regulation also means the cost of mortgage deposits will remain high with ongoing implications for levels of mortgaged home ownership and private renting, as discussed by Neal Hudson in Swimming Against The Tide.

"Over the next five years the economic recovery should spread geographically"

Lucian Cook, Savills Research

Different submarkets

These issues are of acute importance in London, given the extent of price growth it has seen over the past 10 years. However, this does not mean that the London market will run out of steam completely.

A closer look at the capital gives an important reminder that the performance of each region is an amalgam of different submarkets across both the prime and mainstream sectors, each with different drivers.

This said, over the next five years the economic recovery should spread geographically. This is likely to result in much less London-centric price growth than we have become accustomed to, even if our crystal ball indicates that it will be tempered by the twin constraints of mortgage affordability and accessibility.

Articles from Residential Property Focus 2015 - Issue 3

Video: Residential Property Focus

New videos on the latest five-year house price forecasts by Savills Research.

Maintaining Balance

05 November 2015

Maintaining Balance

Affordability and accessibility are key to the prospects for the housing market.

A Period of Adjustment

05 November 2015

A Period of Adjustment

The prime regions are poised for the ripple effect once stamp duty changes are absorbed.

Market Predictions

05 November 2015

Market Predictions

Five-year house price forecasts for the prime and mainstream markets, 2016 – 2020.

The Problem With Averages

05 November 2015

The Problem With Averages

Overall averages disguise significant differences between submarkets across the capital.

Swimming Against The Tide

05 November 2015

Swimming Against The Tide

Reversing falls in homeownership will present a major challenge for the Government.

 
 

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