Average house prices in the East of England are predicted to fall by 11 percent next year, according to latest forecasts from property expert Savills.

But, longer term, growth is expected to return as affordability pressures ease.

As the Bank of England increases the base rate, Savills has issued new five-year house price forecasts for both the prime and mainstream markets.

As borrowing costs rise, the housing market will diverge between the mortgage-dependent mainstream markets and the prime markets, broadly the top 5-10 per cent by value in each region, the firm says.

In the East of England, mainstream house prices are expected to fall by 11 percent in 2023 – recovering to rise by 15.7 percent between 2024 and 2027.

In the prime markets house prices in the East of England are expected to fall by around six percent next year – rising by 16.5 per cent between 2024 and 2027.

Natalie Howlett-Clarke, joint head of residential sales at Savills in Norfolk, said the expected fall comes after two years of unprecedented growth where regional mainstream prices have risen by an average of 20 per cent.

“The Norfolk housing market remained remarkably strong in the first half of the year but levels of demand changed over the late summer/autumn with the realisation that the Bank of England would need to do more to tackle inflation,” she said.

“Consequently, after two years of unprecedented activity, the market is now reverting to a more traditional structure. There may well be some parts of the county – the likes of North Norfolk for example – that prove more resilient, however affordability will still come under real pressure as the effect of higher interest rates and rising costs of living feed into buyers’ budgets."

Peter Ogilvie, head of residential at Savills in Suffolk, agrees that they, too, will see resilience.

He said: "I think there may well be parts of Suffolk and North Essex that remain relatively resilient - Southwold, Aldeburgh, Walberswick and the hotspots along the Heritage Coast being the prime examples.

“There continues to be a strong appetite among buyers who are still looking and this – together with a lack of available stock – may well underpin house prices to some degree. Buyers looking in these areas also tend to be less reliant on borrowing money to fund a move – so they are somewhat cushioned from the issues around affordability.

“But even the higher end of the market will not be completely immune. The market is likely to continue to cool in the short term and sellers will need to be careful to price their properties accurately.”

Nationally, Savills is expecting the average house price to fall by 10 per cent in 2023 with growth resuming in 2024 – totalling 18 per cent up to 2027.

This is expected to be accompanied by a fall in housing transactions as first time buyers and buy-to-let investors bear the brunt of increased affordability pressures next year, when Bank base rate is expected to peak at 4.0%.

By the end of the forecast period (2027), the average UK house price is expected to be at £381,578, a £22,290 gain over five years. This will put prices a significant £92,000 above the pre-pandemic level, following two and a half years of considerable growth (+24 per cent to the end of September).

Lucian Cook, Savills head of residential research, added: “There are several factors that will insulate the market from the risk of a bigger downturn as seen after the financial crisis.

"Borrowers who haven’t locked into five-year fixed rates, had their affordability heavily stress-tested until August this year. This, combined with relatively modest unemployment expectations and signs that lenders are looking to work with existing borrowers to help them manage their household finances, should limit the amount of forced-sale stock hitting the market next year.

"And looking longer term, the Bank of England’s relaxation of mortgage regulation over the summer has substantially enhanced the prospect of a price recovery; but only as and when interest rates start to be reduced once inflationary pressures in the wider economy ease.

“Meanwhile, rental value growth will continue to outpace earnings growth in the short-term because of the pronounced imbalance between supply and demand, which will come as positive news to landlords already facing higher borrowing costs, but will put increasing pressure on struggling tenants.”