House price predictions for the next five years and how to protect yourself from drops

House prices have been skyrocketing since the pandemic, but as the cost of living crisis continues to rise, what are house price predictions for the next five years?

In September 2022, the average UK house price was £295,000, £26,000 more than it was in September 2021. But with inflation rates soaring to a 41-year high, and the Bank of England raising interest rates as a result, are house prices likely to continue to rise too for those looking to buy a house? 

House price predictions for the next five years

Several economic and property experts have laid out house price predictions for the next 5 years or less. 

House price predictions for 2023/2024

Rising interest rates are the main reason behind a predicted slow down in the housing market in 2023 and 2024. But experts differ in their opinions of how quickly the Bank of England will continue to increase the base rate, which was raised to 3% in November.

Estate agents Savills expects the base rate to rise to 4% in early 2023 and remain there until mid-2024 before starting to fall back. Capital Economics predicts the base rate to rise to 5% next year before dropping to 3.25% in 2024.

It’s generally agreed, however, that mortgage rates of around 5% will remain the norm for the next two years.

As interest rates remain higher fewer buyers can afford to purchase a home so house prices will fall. Sellers are also reluctant to sell when house prices are falling which will add to the slowdown in the housing market.

 *Price falls in quarter 4 compared to the previous quarter 

Against this backdrop, estate agents Savills and Knight Frank expect house prices to drop by 10% and 5% respectively in 2023.

Economic experts Capital Economics are forecasting that in quarter four house prices will be 8.5% lower than they were in Q4 2022.

Although the experts differ in their views of how quickly house prices will fall, they agree that by the end of 2024 house prices will have fallen by around 10% wiping out around half of the gains made by homeowners since the start of the pandemic.

Tom Bill, head of UK residential research at Knight Frank, says: 'The mortgage rate spike after the mini budget led to October being a bad month for the housing market, filling it with uncertainty. Rates since then have already fallen.

'Putting that to one side, things were changing anyway. Inflation hit a 40-year high in August, so the Bank of England had to raise rates quicker which feeds through into higher mortgage costs. That’s the main reason we think house prices will fall.'

House price predictions for 2025, 2026 and 2027

The decline in house prices is expected to be short-lived.

Lucian Cook, head of residential research at Savills, says: 'There are several factors that will protect the housing market from the risk of a bigger downturn like we saw after the financial crisis.

'Until August this year when the rules changed, borrowers have had their affordability heavily stress-tested by their mortgage lender which has protected them from becoming over-indebted. 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 repossessed homes, from hitting the market next year.'

Savills says it expects to see house price growth of 1% in 2024 and a larger rebound of 7% in 2026 if mortgage lenders cut rates over the next 12 months and the base rate declines from mid-2024 as inflation falls.

*Price falls in quarter 4 compared to the previous quarter 

What will happen to house prices in the shorter term? 

Homebuying demand fell after the September mini budget, but according to Zoopla more than 290,000 sales are still progressing towards completion. This will limit any immediate impact on house prices.

Nationwide recorded a 0.9% monthly decline in house prices in October but such a small decrease will not be enough to register an annual fall in house prices this year.

Capital Economics predicts house prices in quarter four to be 6.8% higher than in Q4 2021 while Knight Frank expects house prices to end the year 6% higher than they were last year.

How to protect yourself from house price drops 

You can take several measures to protect yourself from house price falls. 

• Put down a larger deposit. If you have spare savings and are worried about ending up in negative equity, where your mortgage is worth more than your home, you might want to increase the size of your deposit so you have a smaller mortgage. 
• Haggle down the price. With fewer buyers in the market you have a better chance of negotiating down the asking price by the amount house prices are predicted to fall over the next two years.
• Have a five-year plan. Anyone who needs to buy a home now should not get too hung up on a fall in house prices next year if their move is a medium to long-term decision. If you plan to stay in your new home for the medium to long term your property will gradually begin to rise in value again.