By using this website, you agree to our use of cookies to enhance your experience.
Graham Awards


Interest rates up as gloomy housing market forecast is revealed

The Bank of England has increased its base rate from 2.25 per cent to 3.0 per cent.

This is the largest hike in interest rates in three decades, and comes after multiple recent rate rises as the BoE has attempted to curb inflation.

Meanwhile Savills is the latest agency to suggest significant house price falls next year - although in its long-range forecast it says the wealthiest will see smaller falls and a quicker recovery.


The agency says that after over two years of strong growth, the average UK house price is expected to fall by 10 per cent in 2023 when interest rates peak, but the prime markets will see smaller falls and outperform over the five year forecast period.

There will be a growing divergence between cash and equity rich or cash buyers and other groups in their ability to transact, and between the mainstream market and prime markets where housing wealth is most concentrated.  As an example, prime central London values are expected to fall by just two per cent.

On the assumption that interest rates gradually ease back from the middle of 2024, Savills is forecasting that values will begin to recover and that the average UK house price will rise by a net figure of plus six per cent in nominal terms over the next five years.

This is expected to be accompanied by a fall in activity levels to a little under three quarters of the levels seen pre-pandemic, as buy to let investors and first time buyers bear the brunt of increased affordability pressures next year, when Bank of England base rate is expected to peak at 4.0 per cent.

By end of the Savills forecast period - 2027 - the average UK house price is expected to be at £381,578, a £22,290 gain over five years, notwithstanding inflation. 

“The housing market has remained remarkably strong through the first nine months of 2022, but demand dynamics changed over the autumn with the realisation that the Bank of England would need to go faster and further to tackle inflation” says Lucian Cook, Savills head of residential research.

“A new prime minister and fiscal policy U-turns appear to have reduced some of the pressure on interest rates, but affordability will still come under real pressure as the effect of higher interest rates feeds into buyers’ budgets. That, coupled with the significant cost of living pressures, means we expect to see prices fall by as much as 10% next year during a period of much reduced housing market activity.

“There are several factors that will insulate the market from the risk of a bigger downturn as seen after the financial crisis.  Borrowers who haven’t locked into five-year fixed rates had their affordability heavily stress-tested until August this year.  This, combined with relatively modest unemployment expectations and signs that lenders are looking to work with existing borrowers to help them manage their household finances, should limit the amount of forced-sale stock hitting the market next year.

“And looking longer term, the Bank of England’s relaxation of mortgage regulation over the summer has substantially enhanced the prospect of a price recovery; but only as and when interest rates start to be reduced, once inflationary pressures in the wider economy ease.

“Meanwhile, rental value growth will continue to outpace earnings growth in the short-term because of the pronounced imbalance between supply and demand, which will come as positive news to landlords already facing higher borrowing costs, but will put increasing pressure on struggling tenants.”

The prime housing markets - defined by Savills as broadly the top five to 10 per cent by value in each region - are expected to see smaller price falls and a stronger recovery than their mainstream counterparts, due to less reliance on mortgage debt.  This will cushion them from the affordability concerns governing the mainstream markets, but they will not be completely immune to higher interest rates and weaker sentiment feeding upwards from lower price bands. 

“The rarefied market in central London’s top postcodes continues to look good value in historical terms, particularly when seen in the context of the weaker sterling and strong dollar” says Savills.

“A price recovery in this market appears long overdue. This will help shield it from more significant price falls, though it increasingly looks like a stronger recovery in prices will not materialise in earnest before 2025, given the global economic backdrop and prospect of a UK general election in 2024.”

Want to comment on this story? Our focus is on providing a platform for you to share your insights and views and we welcome contributions.
If any post is considered to victimise, harass, degrade or intimidate an individual or group of individuals, then the post may be deleted and the individual immediately banned from posting in future.
Please help us by reporting comments you consider to be unduly offensive so we can review and take action if necessary. Thank you.

  • icon

    Gloomy. Definitely sums up life in the UK.


    Yep. Can't see how increasing mortgages helps anything. Inflation is surely mainly due to global issues, not people spending too much here!! When rents go up tenants won't be able to afford anything, it's very depressing.

  • icon

    I still don't get these rate increases. Usually this measure is used to cool an overheating economy funded by credit. Right now we have galloping inflation as a result of government policies around the world. Fundamentally the printing of £450 billion pounds to pay healthy people to sit at home for 2 years, by guess who? The B of E. So people can't afford food or energy but they decide to help by increasing the cost of mortgages. Honestly you couldn't make it up.


    I agree, putting up interest rates over and over again is not the answer this time. Yes we have needed rate rises, they should have started in 2014, if not earlier. Putin's war has also added to poor decision's made by our so called leaders.
    What really bugs me now is that these people get paid and have healthy pensions whether they are good at their job or not. We need more consequences for these people, after all we get hit in our pockets!
    VAT needs to go up temporarily, this will be far more effective at stopping spending. Fixed rate mortgages and people with no mortgages are not effected as much. Separate the mortgage rate from other loan rates would also help in this situation.

  • icon

    Yes, agree with the comments on here. We're all paying the price for a bunch of cretins elected who are utterly useless. This game of ping pong never ends, because the idiots that await are even worse. These morons cannot understand a simple balance sheet, what the hell are they doing running the country ? They have wrecked this country with their stupidity and inability to run a balanced budget. They spend money that is not theirs and the population are left with the problem when they disappear. They are dishonest and do not tell the people the truth, ie, we're in a complete mess and finances need massively reorganising. Is this the great democracy we keep hearing about?

    A capable government would tell the people that the lockdown 400 billion was a catastrophic mistake. They should tell the people that we're running a deficit of tens of billions per year pre-covid, now it's worse. They should tell the public we have sky high debt of 2 trillion which all us lot are responsible for. Don't be surprised when they come for our assets. They should tell the public, there's only one way to resolve this and it's not bringing in another bunch of idiots, it's either scrapping the nhs (not realistic), scrapping free education (not realistic), scrapping the army (not realistic with crackpots like Putin) or tell people they're going to have to work until 70 (best of a bad bunch of options). Finally, they should do the decent thing and tell the public ''we're morons, we're useless, now you will have to pay for our incompetence''

  • Fergus Wilson

    It should be noted that 40% of purchasers do not need mortgages!


Please login to comment

MovePal MovePal MovePal
sign up