The UK housing market is bracing itself for a significant slowdown in price growth over the next 18 months. According to Item Club's latest economic forecasts, house prices will see a modest increase of just 1.1% this year, followed by an even slower growth of 0.7% in 2027 – a marked deceleration from the 2.7% growth recorded last year.
Economic Adviser Matt Swannell warned that the economy under pressure inevitably leads to the housing market losing momentum, pointing to rising living costs and anticipated joblessness as key factors restraining demand throughout this year and next. The British economy is also expected to "flirt with recession" later in the year, adding further pressure.
Recent data from various property indicators supports these predictions. The Royal Institution of Chartered Surveyors (RICS) has reported declines in both buyer inquiries and agreed sales, suggesting a cooling market. Furthermore, Rightmove recorded its largest June asking-price fall in 14 years, reinforcing reduced demand and cautious sentiment among sellers.
The slowdown is not uniform across the UK, with London forecast to experience a slight decline – house prices projected to fall by 0.1% this year. Tim Lyne, another Economic Adviser to the Item Club, noted that "the era of London driving the housing market is on hold." He cited high property prices, a weaker flat market, and landlords exiting the sector as factors weighing on the capital. In contrast, more affordable regions in northern England – the North East, North West, and Yorkshire – are anticipated to see growth exceeding 2%.
For UK savers and mortgage holders, this forecast implies continued caution. While slower price growth might offer some relief to prospective first-time buyers struggling with affordability, existing homeowners will likely continue to face elevated interest costs due to the Bank of England's ongoing efforts to control inflation – which has led to higher base rates.
Investors in property, including buy-to-let landlords and developers, face a challenging outlook, with affordability constraints and economic uncertainty potentially limiting transaction volumes and price appreciation across much of the market through to 2027. The FTSE 100 could see indirect impacts through the performance of housebuilders and related financial sectors.