Average UK house prices are forecast to fall by a further 1.5% in 2027, as the prolonged conflict in West Asia weighs on sentiment and keeps mortgage rates higher for longer, according to Savills.
The interest rate outlook has continued to deteriorate since Savills' previous forecast in June, with average mortgage rates now not expected to fall below 5% until early 2028.
As a result, Savills expects house prices to continue falling over the remainder of 2026 and through 2027, resulting in a total peak-to-trough decline of around 3.0%.
However, improving economic prospects and mortgage affordability are expected to support a recovery from 2028, allowing average house prices to rise by 15.8%, or £56,500, over the five years to 2031, exceeding forecast CPI inflation of 9.8% and income growth of 14.4%.
House price growth is expected to accelerate during the second half of 2028, according to Savills, reaching 3.5% for the year.
Growth is then forecast to reach 5.0% in both 2029 and 2030 as mortgage rates bottom out and six consecutive years of income growth outpacing house price growth increase buyers’ purchasing power.
The strongest five-year house price growth is forecast across the North of England, Wales and Scotland, where relative affordability and economic prospects provide greater capacity for values to rise. In the three northern regions, average house prices remain below six times average earnings.
This has caused prices to converge across the country, with prices rising by 53% in the North West and just 12% in London. But as the affordability gap remains wide, Savills expects a similar pattern of growth over the next five years.
First-time buyers to lead the recovery
Transaction volumes are also forecast to fall in 2027 as higher mortgage rates weigh on buyer appetite. Activity should begin to recover from 2028, although the pace will vary between buyer groups.
First-time buyers are expected to lead recovery from 2028, with deposit affordability at its best level since 2008. Less stringent mortgage stress testing, relaxed restrictions on high LTV lending, and the government’s Your First Home scheme should support activity, enabling this group to overtake cash buyers as the largest buyer group by 2029.
Home mover activity is likely to remain subdued until improved affordability releases pent-up demand from 2028 onwards. Cash purchases are also expected to decline, while lower returns and increased regulation and higher taxation will keep buy-to-let activity below its long-term average and accelerate the shift towards larger, professional landlords.
Emily Williams, director of residential research at Savills, 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.
“But this is unlikely to trigger a sharper correction. 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. Together, these factors should keep forced sales low and limit further downward pressure on prices.”
Dan Hill, residential research associate at Savills, added: “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.
“Property type will also remain an important driver of performance. 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. As a result, we expect houses to continue outperforming flats.”
