Regional performance is largely influenced by where we are in the housing market cycle. Since 2017, we’ve been in the second half of the cycle, where the more affordable regions in the North and Scotland outperform the UK average, and capacity for growth in London and the South is more limited. 

Behavioural changes brought about by the pandemic have caused some disruption to these cyclical trends. The areas that have seen the most significant price falls since interest rates spiked in 2022 are rural and coastal areas that have become less attractive as working from home has become less widespread. The need to return to areas more connected to major employment hubs has driven slightly stronger than expected performance in London over the last 12 months. 

A key question for our forecasts is whether this pandemic-driven disruption has worked its way through the system. Our expectation is there continues to be some residual impact into 2025, bringing growth in the South West and East of England below that of the capital. The short term outlook for London is encouraging, with the RICS reporting positive price expectations for the last four months after a two year period of negative sentiment.

But beyond next year, we expect affordability to be the key influence in every region. The Regulated Mortgage Survey shows that buyers in London and the South East are more affluent than the UK average. But they still need to borrow at least three times their income, and accumulate an average deposit of £142,000 in the South East and £210,000 in London in order to buy. This will constrain the potential for house price increases in these areas in the longer term, even as the cost of debt decreases over the coming years. 

We expect the more affordable markets in the North, where mortgaged buyers are under less strain, to see the strongest acceleration in growth. In 2026 and 2027, there is potential for annual growth of between 6 and 7% across the North of England, Scotland and Wales. But this level of growth will start to stretch buyers’ finances even in markets that are currently affordable. And so, by the end of our forecast period, we expect that growth in all areas will slow, to be more closely aligned to earnings growth.