House Prices – Past and Future

The following article looks at average UK house prices over 2015, as well as predictions by banks, building societies and other agencies regarding likely price changes over the coming year.


The property investment market faces an important period of change. New taxation on buy-to-let landlords and the prospect of small interest rate hikes later this year may alter the dynamics of the market, and changes in the world economy bring further questions. The approach of an EU referendum adds another layer of complexity so, all in all, there is much for property investors to consider.

However, whatever other uncertainties there may be in the market, the strength of the UK housing market’s recovery is not one of them. All the main publishers of house price indices agree that values rose strongly over the course of 2015 – most noticeably in the first half of the year. More recently, the rate of growth slowed slightly but, as the figures below demonstrate, there is widespread agreement that property has continued to delivery very respectable capital returns.

House price changes in 2015

Source Price change / period Real terms price change
Halifax +9.5% / Jan to Dec £192,954 to £208,286
Hometrack + 4.4% / Jan to Nov £185,800 to £193,900
Land Registry +3.8% / Jan to Oct £179,492 to £186,350
Nationwide +4.5% / Jan to Dec £188,446 to £196,999
Office for National Statistics + 6.3% / Jan to Oct £270,000 to £287,000
Rightmove + 5.9% / Jan to Dec £273,275 to £289,452

The large discrepancies between the various agencies’ figures are due to differences in the measures they use to calculate their averages. Some work on the basis of asking price, others use the actual sale price and others use the valuations quoted in mortgage approvals. Regardless of the methodology, however, there is a clear belief that values have risen at well above the rate of both inflation and average national earnings. Working from the figures above, we arrive at a mean annual growth rate of just over 5.7%.

The picture at a regional level is, of course, much more patchy and we’ll consider the subject in another post, but it’s worth noting that, according to most indices, all regions saw values rise last year.

House price predictions for 2016

Importantly, there is a general consensus amongst lenders, estate agents and other property professionals that house prices will continue to rise well into the future. With so few new homes being built and the number of housing transactions still substantially below the long term mean, the opportunities for first time buyers are very thin on the ground. The government is proposing new measures to kick start new house building but these are unlikely to deliver either swift or radical changes. As a result, demand seems certain to outstrip supply for a long time to come, which leaves prices with only one way to go – and that’s up.

House price predictions: 2016

Anderson Harris IHS Global Insight Halifax Hamptons International Nationwide RICS ThisIsMoney
+5% +6% to +7% +4% to +6% +4.5% +3% to +6% +6% +4%

In December 2015, Savills Research went a step further by producing its five year house price forecast. This predicts relatively rapid growth this year, followed by a gradual slowing towards what it regards as a more sustainable rate of around 2.5%. Its figures are shown below.

Year 2016 2017 2018 2019 2020 5 year
Price growth 5% 3% 3% 2.5% 2.5% 17%

Source: Savills Research

In its ‘Spotlight: Key Themes for UK Real Estate in 2016’, Savills explained its expectations, noting that: “Over the medium term, rate rises are likely to put a squeeze on affordability … making house price growth dependent on earnings and the pace of economic growth both at a national and regional level.”

This is a view shared by the Halifax, whose press release of 4th December noted: “House price growth is expected to be broadly in line with income growth beyond 2016 as steadily rising interest rates increase the affordability constraint on demand.”

Knight Frank expects slightly faster growth over the next five years. In its UK Residential Market Update (December 2015), it stated: “Looking to the future for house prices, Knight Frank forecasts cumulative 20.3% growth across the UK and 20.5% in prime central London to the end of 2020.”

Year 2016 2017 2018 2019 2020 5 year
Price growth 4.1% 4.1% 3.5% 3.1% 4.0% 20.3%

Source: Knight Frank

Understandably, given the plethora of factors now affecting the market, most commentators have accompanied their predictions with a raft of caveats and provisos. The reality is that each prediction is only as good as the assumptions on which it is based, and with so many variables now to consider, many have chosen to simplify their forecasts by concentrating on the fundamentals of the market.

Fortunately, in 2016, those fundamentals look set to remain strong. Prospects for sustained demand and capital growth both look very good.

Views from the Industry:

“Solid economic growth, rising real earnings and falls in already very low mortgage rates have combined to stimulate housing demand this year … The increasingly acute imbalance between supply and demand is causing prices to rise at a robust pace. A situation that is unlikely to reverse significantly in the short-term.”
Martin Ellis, Halifax housing economist, 8th December 2015.

“A combination of high demand and lack of available homes is creating a vicious cycle for the property market, and the shortage of homes available to buy is pushing house prices higher. Meanwhile, people who are unable to purchase their own home are forced to rent one instead, increasing demand in this sector too, and pushing up rental costs.”

Zoopla report, 12th November.

“As we look ahead to 2016, the risks are skewed towards a modest acceleration in house price growth, at least at the national level, despite the likelihood of interest rate increases from the middle of next year… Further healthy gains in employment and rising wages are likely to bolster buyer sentiment, while borrowing costs are expected to rise only gradually.”

Robert Gardner, Nationwide’s Chief Economist, December 2015.