UK house prices are set to rise broadly in line with incomes over the next five years, but the traditional north-south divide will turn on its head, with the Midlands, North and Scotland expected to see the strongest increases, according to new forecasts from international real estate adviser, Savills.

Brexit will continue to impact sentiment over the short term, particularly in London and its commuter belt, but local market affordability is expected to determine the pattern of price growth over the longer term, the firm says.

Between 2019 and 2023, UK house prices will rise an average 14.8 per cent, Savills projects, ranging from 21.6 per cent in the North West to single digit growth in London and the South, far the strongest performers since the downturn, due to affordability constraints. Values in the capital’s prime market will perform much more strongly, given price adjustments already seen in those market since 2014, the firm says.

Other regions were much slower to recover post the global financial crisis of 2007-2008 and some have only recently returned to peak values. House prices are therefore more affordable, with greater capacity for loan to income ratios to increase.

At this point in the cycle, the highest price growth is expected in the lower value markets much further from the capital, which have seen nothing like the 10-year price rises seen in London and the south east – just 1.9 per cent in the North and 5.8 per cent in Scotland.

Rohan Vines, head of residential sales at Savills Haywards Heath, said: “The mainstream property market in the south east is forecasted to see gradual steady growth of 9.3 per cent over the next five years, with an expectation for values to hold steady during the Brexit year of 2019. This is broadly in line with the forecasts for the prime markets, and shows a stronger position than for London, which is forecasted a rise of 4.3 per cent over the next five years.

“As regions such as the north west and Scotland have seen slower recovery in the last ten years compared to London and the south east, the relatively high increases forecast for these areas reflect a rebalancing of property values across the country.

“The Savills offices in the south east have had a busy October, with all signs pointing towards this continuing into November. As we are seeing a high level of purchasers currently seeking properties, I’d encourage anyone thinking of listing their home to act now rather than to wait until next year, in order to take advantage of what is currently a seller’s market.”

Lucian Cook, Savills head of residential research, said: “Brexit angst is a major factor for market sentiment right now, particularly in London, but it’s the legacy of the global financial crisis – mortgage regulation in particular – combined with gradually rising interest rates that will really shape the market over the longer term. “That legacy will limit house price growth, but it should also protect the market from a correction.”

Transactions, rather than house prices, are often seen as the ultimate measure of market strength. Sales volumes have fallen only -6.9 per cent since the Brexit vote to 1.145 million, demonstrating the resilience of the UK housing market, Savills says.

The firm expects this figure to decrease by just 1.0 per cent over the next five years. But a continued rebalancing of the composition of the market is expected, with mortgaged buy to let investor purchases falling by -23 per cent. This will add to upwards pressure on rents (see below), particularly in London, as investors look to lower value, higher yielding markets.

Cash remains king and cash buyers now account for almost a third of all sales (31 per cent). The bank of mum and dad has provided important support to first time buyer numbers and, judging by receipts from the three per cent surcharge for additional homes, cash is also an important component of investment demand, Savills said.

Mortgaged first time buyers, the only buyer group to have expanded since 2007 – from 359,000 to 370,000 this year – continue to be supported by Help to Buy and the bank of Mum and Dad. Numbers are expected to remain robust despite the prospect of a less generous, more targeted Help to Buy, with a fall of just -2.7 per cent anticipated by 2023.

Mortgaged home mover numbers have fallen dramatically since 2007 as existing home move home less frequently. Numbers are down from 653,000 to 370,000, but having adjusted for stress testing of borrowing, are expected to remain constant over the next five years.

Buy to let buyer numbers will continue to come under pressure. Stamp duty and mortgage-interest tax relief changes have led highly leveraged investors to rationalise portfolios or pay down debt.

Rental growth to outpace income growth:

Rental growth is expected to track house price growth, averaging 13.7 per cent over the next five years. Tightening access to mortgage finance and limited social housing supply is driving demand for privately rented homes at all price points. This is particularly true in London, where rents will rise by 15.9 per cent.

Cook said: “Until the market sees a significant injection of build to rent stock, rental demand will outstrip supply and rents will rise. Investor buyers requiring borrowing are expected to focus on higher yielding markets and this will put further upwards pressure on rents in some of the most expensive rental locations.”