House price predictions for next 5 years

For existing homeowners, the last year has proved to be remarkably favourable. According to the Office for National Statistics, during the year ending March 2021, average house prices in the UK rose by an unprecedented 9.9%. Not such good news, of course, for first-time buyers.

While the end of phase one of the Stamp Duty holiday has undoubtedly seen a cooling of the market, prices continue their relentless upwards trajectory in most regions. In March, national estate agent Savills confidently predicted that house prices would rise by a further 4% through the remainder of the year, a prediction that looks on course to be spot-on. Increasingly, though, the question that everyone is asking is just how long this can continue?

Last month, I considered predictions for the housing market in the coming months, as well as the challenges faced by many first-time buyers. However, our thoughts are turning increasingly beyond the current year to the medium term, specifically what might happen to house prices over the next few years.

Will the housing market crash?

According to market experts, we should not expect a housing market crash – far from it. Few expect the previous year’s gains to be lost, and while the pace of growth over the medium term is likely to be more modest, most believe it will be sustained. Analysts at HSBC, a banking behemoth that in March approved more mortgages than in any month in its history, have provided a list of reasons for this prediction. In particular, they point to:

• the strength of the UK employment market;
• a strong post-pandemic bounce-back in the economy;
• the continued cheap cost of borrowing;
• pent-up savings from lockdown – there is an estimated £250 billion sitting in savings accounts; and
• the unwavering UK obsession with property investment.

Also, we should not overlook political considerations. For a variety of reasons, the government sees the housing market as crucial to the health of the whole economy. You will recall that it was the first sector they reopened following the first lockdown, almost immediately dangling the carrot of a tax break as a means of reinvigorating the market. The success of that move was the major contributing factor to £47 billion being added to the national mortgage debt in the twelve months ending May 2021. Even a period of moderate house price deflation could see millions of people entering negative equity. It’s very likely then that the government will take all reasonable steps to ensure the market’s buoyancy.

Housing market predictions UK

Among those with the highest confidence for the longer-term performance of the housing market are RICS-regulated house buyers Good Move. They analysed property prices from 1980 to 2020, the data demonstrating that prices had dipped only once in four decades. Their model predicts that over the next ten years, UK house prices may rise by 17%. Compared with 2020/21, that may seem a little tame, but remember that’s without the boost of a Stamp Duty holiday. If we recalculate from a base of July 2020 when the tax break was announced, their prediction would likely be closer to 28%.

Currently, demand outstripping supply continues to be the biggest upwards driver of house prices, and most experts predict it’s likely to be some months before that situation begins to normalise.

For potential first time buyers, I’m afraid this all makes depressing reading, particularly for those with concerns over their loan-to-income ratio. In reality, many with a deposit who were holding fire in the hope of the market stalling are now scrambling to gain a foothold on the housing ladder while they can still afford to.