Savills forecasts 1.5% fall in UK house prices in 2027

Savills said on Wednesday that average UK house prices will fall 1.5% in 2027 after a broadly flat 2026. The estate agency downgraded its outlook because the prolonged conflict in the Middle East has kept mortgage rates higher for longer, squeezing affordability and buyer demand.

The forecast implies a peak-to-trough decline of around 3.0%, with prices drifting lower over the rest of 2026 and through 2027. Savills no longer expects average mortgage rates to fall below 5% until early 2028, a deterioration from its June forecast.

Emily Williams, director of residential research at Savills, said the conflict had pushed back the prospect of meaningful mortgage-rate relief. She said a sharper correction was unlikely because most homeowners have already absorbed higher borrowing costs since late 2022, few still need to refinance from rates below 2%, and the labour market remains resilient.

London and the South East lead 2027 falls

Savills forecasts the sharpest 2027 declines in London, the South East and the East of England, each down 3.5%. The South West falls 3.0%, the East Midlands 2.0% and the West Midlands 1.5%, in line with the UK figure. The North West, North East and Scotland each rise 1.0%, while Wales and Yorkshire and the Humber rise 0.5%.

Over five years to 2031, Savills forecasts 23.3% growth in the North West against 8.1% in London. Average London prices are 11.3 times average earnings, against below six times in the three northern regions.

Mortgage rates stay above 5%

Savills assumes Bank Rate rises to 4.25% by the end of 2027, before falling to 3.25% in 2028 and 3% in 2029. It expects a year-end base rate of 4.00% in 2026, above the 3.75% set in September.

The Bank of England left Bank Rate at 3.75% last month and cautioned that further energy price rises raised the prospect of a November hike, dpa-AFX reported. The ONS house price index showed annual growth of 0.9% in August, ABC Money reported, with the average UK price at £273,037.

Recovery from 2028

Savills expects growth to accelerate in the second half of 2028, reaching 3.5% for the year, then 5% in both 2029 and 2030 and 3% in 2031. Over the five years to 2031, average prices rise 15.8%, above forecast CPI inflation of 9.8% and income growth of 14.4%.

First-time buyers are expected to lead the recovery from 2028 and to overtake cash buyers as the largest group by 2029. Deposit affordability is at its best since 2008, and Savills points to less stringent mortgage stress testing, relaxed high loan-to-value lending and the government's Your First Home scheme as support.

Buy-to-let stays weak. Lower returns, tighter regulation and higher taxes should keep it below its long-term average and accelerate a shift towards larger, professional landlords. The company also said a general election called in 2027 could delay a recovery if it put renewed upward pressure on inflation, borrowing costs or buyer confidence.

Dan Hill, a residential research associate at Savills, said markets combining relative affordability with strong employment and investment prospects should outperform, including Manchester, Leeds, Liverpool and Bristol. Houses should keep outperforming flats, which face headwinds from affordability constraints, building safety concerns and greater supply.