The UK housing market faces another difficult year, with house prices expected to fall further in 2027 and a sustained recovery unlikely before the second half of 2028, according to Savills. The property consultancy has downgraded its outlook as the prolonged conflict in the Middle East keeps mortgage rates higher for longer, squeezing affordability and buyer demand.
Forecast points to 1.5% fall in 2027
Savills now forecasts a 1.5% fall in average UK house prices next year, following a broadly flat 2026. That would leave values around 3% below their recent peak. The revised outlook will disappoint estate agents hoping for a stronger recovery in transactions and buyer confidence.
However, Savills expects the market to recover from 2028, with average house prices rising 15.8%, or £56,500, over the five years to 2031. That recovery depends heavily on borrowing costs falling. Savills no longer expects average mortgage rates to drop below 5% until early 2028. Its forecast assumes Bank Rate will rise to 4.25% by the end of 2027 before falling to 3.25% in 2028 and 3% in 2029.
Mortgage costs delay housing market recovery
Emily Williams, director of residential research at Savills, said the outlook has deteriorated since the firm's previous forecast in June. She commented: “The drawn-out conflict in the Middle East has pushed back the prospect of meaningful mortgage-rate relief, which will weigh on buyer sentiment and affordability. We expect this will suppress activity and put pressure on prices next year.”
However, Williams does not anticipate a more severe housing market downturn. She added: “Most homeowners have already absorbed higher borrowing costs since late 2022, with relatively few still needing to refinance directly from rates below 2%, and the labour market remains resilient.”
Savills expects house price growth to reach 3.5% in 2028 before accelerating to 5% in both 2029 and 2030. Growth is then forecast to ease to 3% in 2031. Over the five-year period, house price inflation would exceed both forecast consumer price inflation of 9.8% and nominal income growth of 14.4%.
First-time buyers expected to lead recovery
First-time buyers could provide the strongest boost to transactions once mortgage affordability improves. Savills expects this group to overtake cash purchasers as the largest buyer category by 2029. Deposit affordability has improved to its strongest level since 2008. Changes to mortgage stress testing, high loan-to-value lending and government support could also help more buyers enter the market.
However, home movers may remain reluctant to transact until borrowing costs fall. Buy-to-let investment is also expected to remain below its long-term average. Savills points to higher taxation, tighter regulation and lower returns as continuing obstacles. The consultancy expects these pressures to accelerate the shift towards larger, professional landlords.
North set to outperform as London lags
The regional divide in house price growth is expected to widen further. Savills forecasts the strongest five-year growth in the North West, where average prices could rise 23.3% by 2031. The North East follows at 22.2%, with Scotland at 21.6%. Yorkshire and the Humber and Wales are both forecast to record growth of 21%.
London, by contrast, is expected to see prices rise just 8.1% over the same period. The capital also faces one of the sharpest short-term corrections, with Savills forecasting a 3.5% fall in 2027. The South East and East of England are also expected to record declines of 3.5% next year.
Affordability remains a major factor. Average house prices across the three northern English regions remain below six times average earnings. In London, the ratio stands at 11.3. Dan Hill, residential research associate at Savills, said: “Markets combining relative affordability with strong employment and investment prospects are expected to outperform, including Manchester, Leeds, Liverpool and Bristol, alongside well-connected commuter locations offering better value than their surrounding regions.”
Houses expected to outperform flats
Property type will also influence performance over the coming years. Savills expects houses to continue outperforming flats as buyers seek more space and flexibility. Demand for larger family homes should benefit from changing household demographics and flexible working arrangements. Flats face greater pressure from affordability constraints, building safety concerns and higher supply.
Hill added: “Demand for larger family homes continues to be supported by flexible working patterns and changing buyer demographics, while flats face headwinds from affordability constraints, building safety concerns and greater supply.”
Prime London could fare better later in the forecast period. Several years of price declines have improved relative value, giving the market greater scope for recovery. For estate agents, the forecast points to another challenging year before transaction volumes begin to recover. But the outlook remains dependent on inflation easing and mortgage rates falling as expected. Further geopolitical disruption could push the recovery back again.
