House prices across the UK are forecast to fall by seven per cent this year — according to the most recent property market forecasts.
In 2024 UK values will fall by a further four per cent before increasing by 2.5 per cent, three per cent and three per cent for the following three years.
The top end of London’s homes sales market, where multi-million pound pads change hands, is predicted to bounce back faster than anywhere else in the country – the study shows.
House prices in what is known as ‘prime central London’ (PCL) are expected to fall three per cent, and remain flat in 2024.
The “erratic” mortgage market of the last year has eroded sentiment, quashed sales and caused house prices to fall even in the most affluent parts of the capital, despite the return of the overseas buyers, according to Knight Frank.
Liz Truss’s disastrous mini budget and the rapid hike of the Bank of England base rate over the last 12 months means mortgage rates are three times higher than they were three years ago.
Although the housing market in the luxury core of the capital — Knightsbridge, Belgravia, Mayfair, Kensington and Chelsea — is far less dependent on borrowing and far more dependent on cash buyers than anywhere else, this instability still hit buyer confidence and slowed decision-making.
Will the general election dislodge a house price recovery?
Although more instability is looming on the horizon, in the shape of the General Election, today’s predictions paint a more positive picture than some previous forecasts predicted.
After initial falls this year and next, house prices are expected to start rising again in 2025, by 2.5 per cent, three per cent and three per cent for the following three years.
UK house prices: five-year forecast
Year |
UK |
2023 |
-7 per cent |
2024 |
-4 per cent |
2025 |
4 per cent |
2026 |
4 per cent |
2027 |
5 per cent |
Five-year forecast |
1.4 per cent |
Source: Knight Frank
“We think prime central London will experience a smaller correction [than other parts of the capital and the UK] due to a combination of more cash sales (around half inside zone 1), the fuller return of international travel, and a marginally stronger recovery from 2026,” says Tom Bill.
The considerable stamp duty burden on homes worth more than £937,000 and the message that Brexit sent to the international buyer, plus a series of different prime ministers, has kept activity and prices muted in PCL since the peak eight years ago.
Prices in these exclusive pockets of the capital, do not have as far to fall as other areas, Bill explains. “Prices are still 15 per cent below their last peak in mid-2015,” he adds.
London rent: new five-year forecast
Rents across London are expected to rise another seven per cent by the end of this year, a faster rate of growth than the rest of the UK
The imbalance between the supply of rental properties in the capital and the demand to live in them has been rapidly becoming more acute, as landlords sell up (due to punitive tax rises), more workers return to the office and fewer tenants are able to afford to buy their own home.
Over the next five years the average rent in London, which is already at record highs, has been newly forecast to rise 23.3 per cent compared to 22.2 per cent across the rest of the UK, the estate agent Knight Frank reveals.
London rental forecast
Year |
Greater London |
UK |
2023 |
7 per cent |
6.5 per cent |
2024 |
5.5 per cent |
5 per cent |
2025 |
3.5 per cent |
3.5 per cent |
2026 |
3 per cent |
3 per cent |
2027 |
2.5 per cent |
2.5 per cent |
Five-year forecast |
23.3 per cent |
22.2 per cent |
Source: Knight Frank
“We think there will be stronger growth [rents will rise] this year and next in London as the imbalance between supply and demand takes more time to correct, especially as landlords have left the sector in recent years due to the mounting tax burden and increased red tape,” says Tom Bill, head of residential research for Knight Frank.
Recent research from Hamptons put the average rent in London at £2,287 per month, £2141 in outer London and £3,055 in inner London.
As a result of such hikes, young tenants are being forced to move back home with their parents or rent outside the capital with a greater proportion of their income going on making the rent — despite wage growth.
Commentator Lucian Cook of Savills has warned that such expensive housing costs will result in a dearth of talent in London as graduates choose other more affordable cities to settle in.
There is evidence to suggest that in the exclusive centre of the capital the supply-demand imbalance is easing as vendors who are not financially forced to sell let their homes out while they wait for property prices to increase, says Knight Frank.
The agent predicts that the average rent across London will rise 5.5 per cent next year, compared to five per cent in central London and five per cent in the UK.
