Affordability pressures caused price falls in the South East and East of England in 2019. Both regions have a low take-up of the furlough scheme, which suggests their labour markets may be more resilient to the economic damage.
While the South East is set to be the most popular destination for households leaving London, future price growth will be capped by affordability barriers. We expect house prices in the South East to rise in each of the next four years, giving total growth of 5.0%.
The East is more affordable than the South East and was seeing weaker price growth leading into the crisis. We expect prices to rise 6.0% over the next four years.
The South West may be the most affordable Southern region, but it has seen the biggest rise in the unemployment rate of any region in Great Britain due to its reliance on tourism. We expect a price fall of 1.0% in 2021, but by 2023, the South West should have caught up with the South East and the East.
The Midlands seems set to be hit hardest by the economic impact of the pandemic. Both regions are heavily reliant on manufacturing, one of the sectors most affected by Covid-19. The unemployment rate in the East Midlands rose to 4.4% in May to July 2020, the second-biggest quarterly increase in Great Britain.
House prices in the East and West Midlands grew quickly between 2017 and the start of 2020. But due to the pain inflicted by the pandemic on the labour market, we expect price growth to slow this year, with small price falls in 2021. Growth should return in 2022.
We expect the East and West Midlands to be the weakest performing regions in Great Britain over the next four years.
Over the next four years we expect house price growth to be strongest in all parts of the North. The top performer is forecast to be the North East, which ranks as the most affordable region and where prices have only risen 5% over the past decade. The North East also has the highest number of applicants registering for each new property, a sign of pent-up demand. By the end of 2023 we expect the North East to be the top-performing region, with prices to have risen by 11.5%.
At the beginning of 2020, the tempo of the market in the North West was lively. This mood returned after lockdown. In September, the average home in the North West sold for 0.1% above its initial asking price - the first time on record that the average home was more likely to sell above its asking price.
The region should be in good stead to weather the storm thanks to its diverse labour market. As a result, we think prices will rise by 2.5% this year, 0.5% in 2021 and up to 3.0% and 4.5% in 2022 and 2023.
We also expect house prices in Yorkshire and The Humber to continue rising throughout the forecast period, reaching 4.0% annual growth in 2023.
House price growth has been strong in Wales over the last few years; there was a rise of 3.7% in 2019, the highest of any region in Great Britain. It also has a resilient labour market, with the lowest unemployment rate nationwide and a low furlough scheme take-up.
As a result, we expect house prices to continue rising, albeit at a slightly lower rate of 3.0% this year, making it the top-performing region in 2020.
After some weakness in 2021, growth should resume, with increases of 3.0% in 2022 and 3.5% in 2023.
Scotland’s market bounced back particularly strongly following its delayed reopening at the end of June. It’s also the second most affordable region: prices have risen 19% over the last decade. We expect house price growth to slow to 1.5% this year and remain flat in 2021. Over the next four years we expect prices in Scotland to rise by 10.0%.
Prime markets outside London
We expect prime markets outside the capital to outperform price central London. These areas are typically less reliant on overseas purchasers, buyers have generally built up considerable equity, are less likely to have lost jobs and an increase in moves out of London will support pricing.
