Brexit vote brings slower house price growth and sales rates

04 November 2016

• Economic uncertainty to trigger 2 years of very low house price growth, but an extension of the low interest rate environment will prevent a price correction

• UK mainstream house price growth to average 13% by 2021, with East of England the top performer at 19%

• Brexit compounding the stamp duty effect on the prime markets, signalling 2 flat years before a return to trend growth in 2019, but prime markets to outperform the mainstream over the 5 years to end 2021

• Transaction volumes to fall 16% over the next two years, recovering by 2021, but different buyer groups impacted differently 

• Reduced buy to let lending to constrain investor activity as rental demand rises, meaning that rental growth will outpace house price growth

“There is no precedent for the current market and the Brexit vote makes forecasting more challenging than perhaps ever before,” says Lucian Cook, Savills UK head of residential research. 

“The effect of Brexit is complicating a natural shift towards the later stages of the housing market cycle, when the strongest growth is seen beyond London and the South East.  What is clear is that the housing market does not like political and economic uncertainty and this points to a lower growth, lower transaction market across the board.”


The UK housing market has entered a new phase, where post referendum economic uncertainty and weaker consumer sentiment signal a period of low house price growth and significantly lower transaction levels, says international real estate adviser, Savills, which has today issued its five year forecasts.

Negotiations to leave the EU are expected to take two years, during which time buyer sentiment will remain fragile.  Interest rates are now forecast to stay low for longer, which will prevent a market correction. At the same time, buyers will be reluctant or unable to stretch their borrowing, leaving little or no capacity for house price growth depending on location.

Greater economic clarity will bring improved consumer confidence, creating greater capacity for house price growth from 2019, although this will be constrained by inevitable interest rate rises, particularly in the higher value markets. As a result, UK mainstream house price growth is forecast to be marginal over the next two years and total just 13 per cent in the next five. 

House price growth – the regional picture: 

  UK average house prices are forecast to remain flat over the next year to eighteen months, growing just 2 per cent by the end of 2018 and a total of 13 per cent by the end of 2021. 

After inflation-busting house price rises of the post credit crunch years, London is left with less capacity for growth than its neighbours, though the affordability squeeze may feed into the South East. The more affordable markets of the Midlands, Wales and the North of England theoretically have more capacity for price growth as they are less impacted by interest rate rises, but many lack the economic catalyst needed to unlock this potential.  

The weakest five year price growth, at 9 per cent, will be in the North East and Scotland, where Aberdeen (which showed the strongest post credit crunch growth) will continue to be a drag on the national average as long as oil prices remain low. The North of England will begin to outperform by the end of the 5 year period.

Click to see forecast table of mainstream house price growth

Prime premium? 

More discretionary prime housing markets are expected to be especially susceptible to shifts in sentiment, resulting in subdued growth over the next two years.  Thereafter, with less reliance on mortgage debt than in the mainstream, trend growth should resume.

The value gap between London and the rest of the UK suggests the commuter belt (+20%) and wider South of England (+17%) will outperform prime outer London.  Prime central London will see a bounce in values from 2019 and 21 per cent five year growth, assuming London’s global city status remains relatively unchanged.

Click to see forecast table of prime house price growth


Importantly, weaker sentiment, the effects of mortgage regulation and slower house price growth will all feed into lower housing market turnover, but different buyer groups will be affected differently.  First time buyers will face ongoing challenges in raising a deposit and numbers are expected to fall 15 per cent from 325,000 this year to 275,000 in 2018. Schemes such as Help to Buy will remain important if volumes are to recover by 2021. Tougher lending criteria will also constrain mortgaged home owners looking to trade up, while cash buyer numbers, currently 35 per cent of the market, may be discouraged by increased stamp duty.

Buy to let investors with a mortgage, some 10 per cent of the market and therefore an important source of housing, face tax disincentives and impending mortgage regulation.  Their transactions are expected to fall from 120,000 to 90,000 in 2021, and hit a low of 80,000 in 2018, suppressing levels of new private rented stock brought to the market.  The additional stamp duty for investment and second home buyers will also continue to impact cash buyer sentiment.

Click to see forecast table of transactions

Rental growth to beat price growth:

As first time and second stepper buyers struggle to access or trade up the market, demand for rental properties will increase.  This means that rental growth will be stronger than house price growth both in the short term and over the five year forecast period.  Average rents are forecast to rise by a total of 19 per cent, and 24.5 per cent in London, where access to home ownership is most difficult.

Click to see table of rental forecasts 




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Lucian Cook

Lucian Cook

Residential Research

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