House price growth in the UK is expected to slow significantly over the next 18 months, with higher mortgage costs and a weakening economy dampening demand, according to the Item Club’s latest economic forecasts.
The forecasting group predicts house prices will rise by just 1.1% this year, followed by growth of only 0.7% in 2027, down from 2.7% last year. Matt Swannell, Chief Economic Adviser to the Item Club, told The Times that “an economy that’s under pressure will cause the housing market to lose steam”.
Economic headwinds
“Rising living costs and higher joblessness will prove a brake on housing demand for the rest of this year and into next,” Swannell said, adding that the British economy is expected to “flirt with recession” later this year.
The forecasts align with recent market indicators showing cooling activity. RICS has reported declines in both buyer inquiries and agreed sales, while Rightmove recorded its largest June asking-price fall in 14 years.
Regional variations
The slowdown is expected to vary significantly by region. London house prices are forecast to fall by 0.1% this year, whilst the North East, North West and Yorkshire are projected to see growth exceeding 2%.
Tim Lyne, Economic Adviser to the Item Club, said “the era of London driving the housing market is on hold”. He cited high prices, weakness in the flat market and landlords exiting the sector as factors weighing on the capital, whilst more affordable regions in northern England continue to outperform.
The forecasts suggest a challenging period ahead for property investors and developers, with affordability constraints and economic uncertainty likely to limit transaction volumes and price appreciation across most of the UK market through 2027.
