House prices to rise by 13% by 2026

Mainstream markets in both Scotland and Wales are also predicted to show the strongest price growth. Price growth is however going to be more constrained in London, which has become confined to more affluent households.

Overall, the real estate agency’s research believes house price growth is expected to be at 3.5% next year, with the average UK house price forecasted to rise by 13.1% over the next five years. This is lower than the growth seen in the 16 months since the market reopened after the first lockdown.

Additionally, increases to interest rates are expected to act as a drag on the amount households can borrow relative to their income. Regionally, the researchers predict that the north-south divide will close further with total five-year price growth of 18.8% in the north west and Yorkshire and Humber outstripping the 5.6% and 10.4% in London and the south east, respectively.

Hybrid working patterns are also expected to underpin demand in suburban rural areas, which will in turn support five-year growth expectations of 19.3% in the UK prime regional markets.

Commenting on the regional outlook, Savills’ director of residential research Lawrence Bowles, said: “There remains more of an affordability cushion beyond London and the south.

“The government’s levelling-up agenda has the potential to accelerate a rebalancing of the market, but only if it gains meaningful traction.The potential for price growth looks more constrained in the London mainstream market (+ two percent predicted in 2022), which has become increasingly confined to more affluent households.

“This reflects the extent to which London prices became dislocated from the rest of the UK housing market through strong price growth from 2005 to 2016, something so pronounced it is expected to still limit price growth across large parts of the capital a decade later.”

As for the rental market, Savills expects rents to resume their long-term correlation with income growth. This means UK rents are expected to rise by 19.9% over the next five years, in line with expectations for incomes.

In London, due to its strong recovery, the five-year outlook is somewhat higher. Here, Savills predicts rents to be 22.2% higher at the end of 2026 than where they are today.