The Welsh housing market is expected to considerably outperform the rest of the UK over the next five years, according to research by Savills. The analysis also shows that while the market remains relatively weak, the outlook is improving.

The analysis, published by Savills UK residential research, looks at the housing market and supply across Wales in 2023 and forecasts expectations for 2024 and beyond.

Sharp increases in mortgage rates constrained affordability and demand, resulting in average price falls of 1.9 % in the year to December 2023, according to Nationwide. This is slightly higher than the UK average fall of 1.8 %.

However, price falls have not been equal across the country. Land Registry data shows that in the 12 months to August 2023 the more affluent locations of South Wales experienced a strong market, with value growth of over 5 % in the Vale of Glamorgan, over 4 % in Monmouth and over 2 % in Cardiff, whereas in North Wales, only Flintshire recorded annual price growth.

According to Nationwide, house prices appear to have stabilised during Q4 2023 with three consecutive months of no change or minor house price growth however, the expectation is that prices will continue to drop back slightly during the first part of this year. However, Savills is forecasting a positive outlook from the second half of 2024 onwards, with 21.4 % value growth in Wales over the next five years to 2028. This represents the strongest house price growth in prospect than any other part of the UK.

Commenting on buyer and seller activity, Dan Rees, head of residential sales for Savills in south and west Wales, said: ‘The autumn and early winter market last year was notably more active than over the summer, as the market started to settle with lower inflation, reduced lending rates and the Bank of England holding the base interest rate. Price reductions have generated more interest from buyers, especially among those who have had to re-assess their affordability.

‘The year has started positively, with plenty of motivated sellers and buyers supporting a functioning market, with excellent long term price growth in prospect.’

The analysis shows that new homes completions fell by 7 % in the year to September 2023 and remain 6 % below the 2017-19 average.

Starts and consents, however, have fallen considerably, with starts down by 18 % in the year to June and consents by 31 % in the year to September, according to the latest available figures from StatsWales and HBF and Glenigan respectively.

Scott Caldwell, head of development for Savills Cardiff, commented: ‘Recently, viability has been incredibly challenging due to the 33 % increase in construction costs for housebuilders since the pandemic, coupled with the higher interest rates and a weaker overall sales market.

‘This will undoubtedly translate to lower completions in the near future, however on a more positive note, the extension of the Help to Buy scheme to 2025 in Wales will give the new homes market a competitive advantage over the wider UK, coupled with a stabilisation of interest rates and the availably of more affordable mortgage products will help boost sales rates, increasing build rates.’

Claire Turner, head of new homes sales, agrees; ‘Use of the scheme had fallen in recent years, as a result of changes to the price cap. The newly extended scheme, having returned to the previous limit of £300,000, has encouraged an uptick in first time buyers, and is also an attractive consideration from purchasers from over the bridge. So, although high interest rates may constrain some would-be users of Help to Buy over the next few months, as these ease, we can expect usage of the scheme to continue to steadily increase in the longer term.’

Transactions fell 20 % below the pre-pandemic average during the third quarter of 2023. This represents a continuation of the low level of activity seen since late 2022, with transactions down by at least 10 % on the 2017-19 average during the first nine months of 2023.