By Jonathan Cable
LONDON (Reuters) - British home prices will make solid gains in the next two years, outpacing overall inflation, but affordability for first-time buyers is likely to improve based on expectations for lower borrowing costs, a Reuters poll of housing market experts forecast.
Those saving for a cash deposit and wanting to get on the property ladder face rents increasing at an even faster pace, however, eating into disposable income and making it harder to save the money needed to be granted a mortgage.
Home values would rise 2.5% this year and then 3.0% in 2025 and 4.0% in 2026, the Aug. 19-Sept. 3 poll of 21 analysts predicted, largely unchanged from a May survey. Consumer inflation was predicted at 2.3% next year and 2.0% in 2026, a separate Reuters poll found.
"There is likely to be a modest surge in prices next year as interest rates fall back a bit," said Mike Scott at estate agency Yopa.
Like its peers the Bank of England raised borrowing costs sharply after the COVID-19 pandemic to combat inflation but trimmed Bank Rate last month and is expected to do so again once more this year. By the end of 2025 it is forecast to stand at 3.75% versus the current 5.00%.
"It's the fall in mortgage rates that has provided a small boost to the housing market and seems to have set a firm floor under future price falls," said Aneisha Beveridge at Hamptons estate agency.
British home prices unexpectedly fell in August in their first monthly drop since April but the outlook for the property market is likely to strengthen, mortgage lender Nationwide Building Society said on Friday.
With interest rates falling, affordability for first-time buyers would improve, 15 of 17 respondents to an extra question said.
"As wages continue to increase above the rate of inflation and the Bank of England reduces rates further, with house prices only just in positive territory, logic says affordability is improving," said Russell Quirk at estate agency Emoov.
Incomes were expected to rise 4.8% in 2024 and 3.2% next year, the other Reuters poll found.
Valuations in London, long a draw for foreign investors, are also forecast to increase, by 1.8% this year and 3.2% in 2025. In 2026 they are predicted to rise 3.5%.
"As for London, it is 'back' and given a world on fire, the UK capital is also a more and more popular safe haven," said Tony Williams at advisory firm Building Value.
Average home prices in London have risen from around seven times median income in 2002 to about 13 times last year, according to data from the Office for National Statistics.
Nationally, rents would rise far faster than home prices, increasing 6.0% in the coming year, the survey predicted.
"There is a dramatic shortage of houses/flats for owner-occupiers, but it is even worse in the rental market because so many landlords are exiting the market due to regulatory changes," Williams added.
Prime Minister Keir Starmer's government plans a Renters' Rights Bill that will remove the threat of arbitrary evictions and make it illegal for landlords to discriminate against families with children, while insurers have pulled back from offering cover, particularly for residential landlords.
Starmer has pledged to boost the supply of cheap properties, building 1.5 million homes in his parliamentary term, and shake up planning laws.
(Other stories from the Q3 global Reuters housing poll)