Savills predict static housing market until 2016
Friday, 11 November 2011 9:49 AM
UK house prices will grow very little over the next five years, according to a residential property forecast by Savills.
The estate agents predict a two per cent fall in 2012, followed by three years of slight, but fairly static, growth.
Only in 2016 will growth really get going again, rising to 4.5 per cent.
The figures represent an 11 per cent fall in real terms and Savills expect that the property market will be at 2002 levels in 2016, on an inflation adjusted basis.
However Lucian Cook, director of Savills' residential research, pointed out that such a real terms drop was not unprecedented, with property prices in 1995 reflecting those levels 12 years earlier.
The true casualty of the housing market downturn has been transaction levels, he added.
Savills' figures show a shortfall of around 3.3 million less transactions than the average over the previous 10 years and this shortfall is expected to reach seven million by 2016.
Cook said that the worsening economic outlook will erode housing affordability, particularly as real annual basic spend will continue to rise along with debt servicing, real annual disposable income will stay fairly constant.
If access to mortgage finance continues to be constrained and people find it increasingly difficult to afford a house deposit then Savills say that this will push more people towards renting.
Yolande Barnes, Savills' head of residential research, predicts that 20 per cent of households will be private renting by 2020, up from around 15 per cent in 2009 and a level not seen since the 1960s.
She added that the supply is likely to struggle to keep up with demand, despite an increase in the number of people buying to let. The result of this would be a 20.5 per cent rise in rents over a five year period.
The outlook for the London market is much better than the rest of the country, with 19.1 per cent house price growth expected over the next five years, in contrast to the 3.1 per cent depreciation which is expected in the North East.
This is reflected by the prime property market, which Barnes described as a "safe haven" for investors, pointing to the relatively cheap pound as attractive to overseas investors.
However she continued and said that a champagne tower effect, where investment in London trickles out to the surrounding regions, appears to have stalled. It is estimated that around £6bn is currently stuck in the capital.
This may be because investors view London as a safe bet with a clear return, whilst other regions of the UK represent a bigger risk.
Savills predict that prime Central London property prices will boom by 22.7 per cent over the next five years but they also say that there will come a tipping point where the surrounding regions such as the South East and South West become an attractive prospect to buyers looking for bargains away from the escalating property prices in the capital.
While Savills paint a gloomy picture for the UK property market, excluding London and those buying to let, there could be more trouble around the corner depending on the outcome of the current difficulties within the Eurozone.
Olli Rehn, European commissioner, said: "Growth has stalled in Europe and there is a risk of a new recession."
The European Union has slashed its growth forecast from 1.8 per cent down to 0.5 per cent, amidst fears over the stability of the Eurozone's third largest economy, Italy.
Want to be the first to know when we break a story? Follow @AboutProperty on Twitter and subscribe to our free weekly newsletter.
