Savills: UK House Prices Set for 4% Growth as Rate Cuts Bite

Savills' latest UK Housing Market Update, published this August, points to a market finding firmer footing after two years of stagnation, with the agency now forecasting average house price growth of around 4% for 2026 and cumulative growth approaching 18% over the next five years. The report attributes this recovery to a combination of falling mortgage rates, resilient employment figures, and a gradual thawing of the affordability constraints that have suppressed transaction volumes since 2023. For an industry that has spent the best part of three years bracing for correction rather than growth, this represents a meaningful shift in tone.

The significance for investors lies less in the headline figure than in what is driving it. With the Bank of England having eased the base rate to 3.75% and swap rates continuing to soften, average two-year fixed mortgage rates have fallen back towards 4.2%, materially improving buyer affordability compared with the 5.5%-plus rates seen in 2023-24. Savills estimates this has restored roughly £30,000 of borrowing capacity to a typical first-time buyer household earning the national average income. That single change explains much of the pent-up demand now flowing back into the market, and it is why transaction volumes are expected to climb towards 1.1 million for the year, up from just under 1 million in 2025.

Regional divergence remains the defining feature of this cycle. Savills' data shows the strongest price growth concentrated in the North West, Yorkshire and the North East, where affordability headroom is greatest and yields remain attractive to investors. Manchester and Leeds are singled out as standout performers, with average price growth forecast at 5.5% and 5.2% respectively this year, supported by strong rental demand and continued inward investment into city-centre regeneration schemes. Liverpool and Newcastle are following a similar trajectory, benefiting from comparatively low entry prices and yields still comfortably above 6% in prime rental postcodes. By contrast, London and the wider South East — including commuter markets across Surrey — are expected to see more muted growth of 2-3%, weighed down by higher price bases, stamp duty drag at the top end, and a slower recovery in mortgage-dependent demand.

Birmingham occupies an interesting middle ground. Savills highlights the city's exposure to both the HS2-driven commercial investment story and a maturing build-to-rent pipeline, which together are expected to deliver price growth in the 4.5-5% range while keeping rental growth elevated at close to 4%. This dual dynamic — capital appreciation supported by structural demand rather than speculative buying — is precisely the pattern Savills argues will characterise the healthiest parts of the market over the coming year, and it is a template investors should be actively seeking out rather than chasing headline yield alone.

For buy-to-let landlords, the report's message is cautiously optimistic but not unconditional. Rental growth is forecast to moderate to around 3-4% nationally, down from the double-digit surges of 2022-23, as tenant affordability limits catch up with landlord ambitions. Combined with tighter regulatory requirements under the incoming Renters' Rights framework and EPC upgrade obligations, this points to a market that rewards well-capitalised, professional landlords while squeezing out smaller, highly leveraged operators. First-time buyers, meanwhile, are the clearest beneficiaries of this update: improved mortgage availability, extended term lending, and continued use of the Mortgage Guarantee Scheme successor are expected to push first-time buyer numbers to their highest level since 2019, according to Savills' estimates.

Developers and commercial investors should read the regional data as a signal to recalibrate pipelines. Savills' projection of sustained demand in the North and Midlands, against comparatively flat London growth, reinforces the case for continued capital rotation towards regional build-to-rent and mid-market housing schemes — a trend already visible in institutional allocation over the past 18 months. The report's five-year forecast, showing cumulative growth of 18-20% concentrated disproportionately outside the South East, effectively endorses this strategy and suggests that investors who remain overweight in London residential risk underperforming the wider market through to 2031.

Taken together, the August update marks a credible inflection point rather than a temporary blip. Falling rates, improving affordability, and a clear regional growth hierarchy give the market a more sustainable footing than the artificially inflated conditions of 2021-22 or the stagnation that followed. Investors who position early in the North West, Yorkshire and the Midlands, while remaining disciplined on leverage and regulatory compliance, are best placed to capture the next phase of UK housing market growth.