UK house prices to fall back to 2002 levels, say Savills

UK house prices to fall back to 2002 levels, say Savills

UK house process are set to drop by 11% in “real” terms in the next five years, leaving them back at 2002 levels when the impact of inflation is stripped out, according to property broker Savills.

The estate agents, who also operate in Ireland, said that prices will remain subdued due to weak economic growth and constrained access to mortgage finance.

In its five year forecast, Savills said the rising cost of living will erode property values rather than cause a sharp headline price fall.

“We would put it in the context of the final scene of The Italian Job,” Lucian Cook, a director of residential research at Savills, told The Telegraph.

“It looks incredibly precarious but actually … (the market) is not falling off the abyss.”

The average house price will be £170,000 in 2016, compared to £161,000 today, and £184,000 in 2007, according to the agency’s forecasts.

That signals that prices will rise just 6pc over the next five years in nominal terms, representing a “real” fall of 11pc when adjusted for the impact of inflation.

The number of sales will remain weak, so that in the decade to 2016 some seven million fewer house moves will have taken place than would have been expected on previous trends, according to the forecasts.

In contrast to property prices, Savills expects rents will rise strongly as people struggle to afford mortgage deposits, with rents up 20.5pc in the next five years, or 3.8pc when adjusted for inflation.

That means yields – the returns investors enjoy from rental property – should perform strongly, Savills predicted, rising 70 basis points to 6.1% in the next five years.

Only prime property in central London will match the growth seen in rents, with prices up 22.7pc in nominal terms over the next five years as the economic uncertainty reinforces the north-south divide in the housing market.

The global rich are turning to expensive properties in Kensington, Chelsea and elsewhere as a perceived “safe haven” similar to gold, pumping in some £4bn a year, according to Savills.

“Central London’s residential real estate is increasingly behaving as an asset class, more closely linked to global wealth generation than any domestic indicators,” said Yolande Barnes, also a director of residential research.

“It is clear that international buyers are buying a safe-haven store for their wealth, some are also making a currency play on cheap sterling.”

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