House price growth in the south and east of England to overtake that of London

Adjustments to the five year projections at Savills HQ continue to predict that the south and south east will outstrip London, although this hasn’t happened yet.

Average UK house price growth has exceeded all expectations over the past year, leaving some markets with reduced capacity for further mid-term growth, according to the latest research from Savills.

The agent now expects average annual UK house price growth to settle at 9.5% this year, ahead of the 6.5% originally forecast. This will be followed by 4% growth in 2015 and 25.7% growth overall in the five years to the end of 2018.

Most notable changes to previous forecasts are for mainstream London and the south and east of England. In mainstream London (not Prime Central London), full year growth is expected to settle at 15.0% against a previously published forecast of 8.%, despite an anticipated slowing in the second half of the year. The markets of the south and east of England were all originally forecast to show marginally higher levels of growth than London this year, but have in fact underperformed the capital to date.

However, Savills maintains that these markets are still expected to show the strongest five-year growth, outperforming London, as buyers and equity flow out from the capital. The midlands and the north have the potential to outperform thereafter, as has been seen in previous cycles, although whether this comes to pass remains to be seen.

‘House price growth in the mainstream market has been underpinned by record low interest rates, rising loan-to-income lending and pent up demand from buyers re-entering the market as the economy and consumer sentiment have improved,’ says Head of Research at Savills, Lucian Cook.  ‘But these extraordinary rates of house price growth cannot continue in the current, more regulated mortgage environment, particularly in the face of likely interest rate rises.’

A housing market correction following interest rate rises also remains unlikely, the new research found: ‘Higher interest rates would increase the risks in sectors of the market where borrowers have taken on high levels of mortgage debt relative to income, but it is difficult to see this as a catalyst for a wholesale housing market correction. Rather, we anticipate a slowing of growth,’ Mr Cook added.

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