The pace at which interest rates rise will be the principal factor influencing house price growth for properties valued up to £1.25 million over the next five years, according to research published by Savills.

The international real estate adviser predicts that average UK house price growth for this sector of the market is likely to reach 17% by the end of 2020 with it reaching as much as 21.6% in the South East.

“Much depends on the speed at which interest rates rise.  Too quickly, house price growth will be curtailed but, if rates remain low for too long, there is a risk prices will rise too far, creating affordability issues later down the line” says Lucian Cook, Head of Savills Residential Research.  “That risk has been mitigated by recent mortgage regulation which, by stress testing affordability, caps the amount people can borrow relative to incomes.”

Savills anticipates house price growth to be strongest in the south and east of England which offer value relative to the capital so should benefit as the ripple gains traction.  Annual transaction rates, at 1.2 million this year, are expected to rise to 1.3 million by 2020, still far short of the 1.7 million pre-crunch norm, as deposit affordability continues to act as a brake on demand and the changes to taxation of buy to let property restrict the ability of some landlords to expand their portfolios.

5 year forecasts for transaction numbers

Harrow Times:

Chris Moorhouse, Head of Savills Northwood residential sales adds:  “This research shows the potential value of the markets in and around Northwood - positive for those already on the housing ladder and potentially valuable for those currently investing in the area or considering investing in the future.  We have found over the course of this year that accurately priced properties in the best locations have sold extremely well, often with competitive interest. This has led to fairly rapid house price growth in the area with a shortage of supply and increased demand.

“In the short to medium term, however, vendors should not set their expectations too high and continue to price at a realistic market level in order to maintain purchaser interest.  This is particularly relevant amid the ongoing discussions surrounding restrictions in lending and potential interest rate rises which may act as a deterrent for some buyers.

“As long as a gap does not appear between the willingness and ability of purchaser’s to pay the asking price and seller’s expectations over what their property is realistically worth, the market will continue to be buoyant.”