Savills Predicts Further 1.5% House Price Fall as Rates Bite

Savills has forecast a 1.5% decline in UK house prices for next year, pointing to prolonged geopolitical tensions and persistently high mortgage rates as the principal drags on the market. As PropertyWire reported, the estate agency expects mortgage rates to remain above 5% until early 2028, with a total peak-to-trough price decline of approximately 3%. For a market that many participants had hoped was stabilising after several turbulent years, this is a sobering recalibration of expectations.

The significance of this forecast lies less in the headline figure than in its duration. A 1.5% fall is not catastrophic in isolation, but Savills' projection that mortgage rates will stay elevated above 5% for roughly another two and a half years changes the calculus for anyone planning to buy, sell, remortgage or develop in that window. Higher-for-longer borrowing costs compress affordability, extend the time buyers need to save deposits, and squeeze the margins on which landlords and developers model their returns. A peak-to-trough decline of around 3% also suggests the correction is relatively shallow and gradual rather than a sharp repricing, which has implications for how different regions and market segments absorb the pressure.

For buy-to-let landlords, the forecast reinforces a theme that has dominated the sector for several years: finance costs, not capital growth, are now the dominant variable in investment decisions. Landlords in cities such as Manchester, Leeds and Liverpool, where yields have traditionally been stronger than in London, will need to stress-test portfolios against mortgage rates staying above 5% well into 2027 and 2028. Those with variable-rate exposure or fixed deals expiring in the next year face a direct hit to cash flow, and some may conclude that refinancing at current rates no longer makes sense against modest or negative capital appreciation.

First-time buyers, meanwhile, sit in an ambiguous position. A further 1.5% fall in prices offers marginal relief on the purchase price itself, but this is likely to be offset, or outweighed, by the continued cost of borrowing at rates above 5%. In high-value markets such as London and Surrey, where loan sizes are largest, the mortgage rate environment matters more to monthly affordability than small movements in asking prices. In more affordable regional markets, including Newcastle and parts of Birmingham, the price correction may do more to genuinely widen access, though buyers there will still be borrowing into a higher-rate world than the one that prevailed before 2022.

Developers and commercial investors should read Savills' forecast as confirmation that the current higher-rate regime is structural rather than transitory. A two-and-a-half-year horizon for rates above 5% is long enough to influence site acquisition decisions, build cost assumptions and exit strategies on schemes now entering planning or early construction. Developers banking on a swift return to cheap finance to support forward-sold values may need to revisit underwriting assumptions. Commercial investors, particularly those with exposure to residential-for-rent or mixed-use schemes, will likely demand wider margins of safety on yield assumptions given the extended period of rate pressure Savills is now pricing in.

Looking ahead to the next six to twelve months, the practical effect of this forecast is likely to be a continuation of the cautious, transaction-light market that has characterised much of the recent cycle. Sellers face a choice between accepting softer prices now or holding positions in the hope that the back end of the 2026 to 2028 window brings relief as rates eventually ease. Buyers with cash or strong deposits are best placed to negotiate, while highly leveraged buyers and landlords face a prolonged period of discipline on costs. Geopolitical tensions, cited explicitly by Savills as a driver of the forecast, add a layer of uncertainty that could tilt outcomes in either direction, but the baseline expectation is now one of gradual, modest decline rather than either a sharp crash or a swift recovery.

The clearest conclusion from Savills' forecast is that UK property market participants should plan for an extended period of elevated borrowing costs rather than a short, sharp correction followed by normalisation. A peak-to-trough fall of roughly 3%, spread over this timeframe, is manageable for well-capitalised investors and owner-occupiers with secure incomes, but it will test highly leveraged landlords and developers who assumed rates would fall back towards historic norms within the next year or two. Those who reposition their financing and investment assumptions now, rather than waiting for a rate cut that Savills suggests is still some years away, will be best placed to navigate the period ahead.