Savills expects house price falls

Savills predicts that average UK property prices could drop by a substantial 6.6% in 2010.

The property group forecasts a bumpy road for property prices over the next five years.

It believes that, following an annual increase of 3.7% this year, there is a high chance that property prices will drop substantially next year as the demand from cash-rich buyers that has been propping up the market runs out.

At the same time it expects the supply of properties on the market to increase, as weak economic conditions force homeowners to sell up.

Residential research director Lucien Cook said:

“In the short-term we are facing events with the potential capacity to discourage house purchases.

 “The uncertainty preceding an election – the prospect of public spending cuts, higher taxes, continuing mortgage rationing, further unemployment, possible stock market correction or future interest rate rises, all have the potential to impact the mainstream, even if the precise timing of such impacts is difficult to pinpoint.”

After 2010, Savills expects average property prices to rise by 2.7% in 2011, 5.5% in 2012, 8% in 2013 and 5.8% in 2014, when the market will return to 2014 levels.

The recovery could deepen the North/South divide which has already started appearing in the UK property market, as the comparatively equity-rich south is not suffering as badly as the north. It could take the market in the North East three years longer to recover tio 2007 levels than London and the South, according to Savills’ report.

“We really could see the emergence of a polarized mainstream market, with sharp regional and localized divergences between areas with high levels of equity and those which are more highly geared,” added Cook.

Savills predicts that the prime property market will be cushioned from the blow of the double-dip recession it is expecting, with high-end London properties only falling 1% in 2010, picking up by 7% in 2011 and 11.1% in 2012.