The analysts predict a modest increase in British home prices this year, followed by even faster growth over the next two years, surpassing the overall rate of inflation. The anticipated 1.8% increase in 2024 is expected to be outstripped by wage growth, signaling a positive trend in the housing market. This projection is bolstered by the expected reduction in borrowing costs and a shortage of supply in the market.
One encouraging aspect highlighted by the experts is the anticipated improvement in purchasing affordability for first-time buyers. With a projected decrease in mortgage rates, all 19 respondents to the survey agreed that affordability for new buyers is set to improve over the next year. This positive development is attributed to stable house prices and real income growth, which should benefit prospective buyers.
Despite the positive outlook for affordability, the issue of supply remains a pressing concern in the housing market. The analysts expressed worry that the supply of affordable homes would fall short of demand over the next two to three years. This gap, especially evident in entry-level homes, poses a significant challenge for prospective buyers. The reluctance of developers to engage in construction due to market and political uncertainties exacerbates the supply crunch.
To address the housing affordability issue and stimulate supply, 13 out of 16 respondents suggested greater government intervention. Proposals included reducing housing taxes, promoting office conversions, relaxing planning regulations, and expanding shared equity initiatives. The role of the government in navigating the housing market dynamics is seen as crucial in ensuring sustainable growth and affordability for buyers.
The upcoming national election and the prevailing political uncertainty add another layer of complexity to the housing market forecast. With no clear consensus on how to tackle the housing crisis, the widening gap between supply and demand is likely to persist, regardless of the party in power. The lack of a cohesive strategy to address the root causes of the housing shortage presents a long-term challenge for policymakers.
The median forecasts from the survey indicate a steady increase in home prices over the next few years – 3.1% next year and 4.0% in 2026. While the projected growth is positive, it falls short of the rapid surge seen during the pandemic era when prices spiked by 25% between 2020 and 2022. The subdued economic outlook and cautious market sentiment suggest a more conservative trajectory for home prices in the near future.
In London, a key market for foreign investors, prices are expected to follow a similar growth pattern as the rest of the UK. Forecasts suggest a 1.8% increase this year, followed by incremental growth in the subsequent years. The projections for London highlight the interplay between domestic factors and global investment trends, shaping the overall trajectory of the housing market in the capital city.
Overall, while the outlook for British home prices appears positive in the short term, challenges such as supply constraints and political uncertainty pose potential risks to sustained growth. The need for targeted interventions and long-term planning strategies to address these issues is crucial in ensuring a stable and affordable housing market for all stakeholders.