Savills predicts a 7.5 per cent house price drop this year, warning that the spike in demand seen currently reflects home buying appetite rather than ability.

The prediction for house prices for the remainder of this year, while a significant drop, is “less than half the level of falls seen in both the early 1990s recession and in the wake of the global financial crisis,” the estate agent adds.

This recalculation comes as part of the estate agent’s revision to its residential market forecast, first published in November, which was reissued after the Oxford Economics economic forecast that Savills bases its estimates upon was itself revised.

Savills also presents a more extreme “downside” prediction, centred around a scenario that includes a longer lockdown, an economy squeezed yet further, and a resultant slower recovery. In this scenario, unemployment peaks at nearly 10 per cent in the first quarter of 2021 rather than the peak of 6.5 per cent in the third quarter of this year that its headline prediction runs with.

Here, “irrespective of low interest rates,” Savills sees house price growth from 2019 to 2024 of 5 per cent, revised down from the 15 per cent it spoke of previously.

London and the South East will lead any recovery of the housing market, Savills concludes, partly because of the proliferation of job sectors that were hit less hard from the lockdown than in other areas, and partly because a low interest rate environment benefits these areas most.

Savills also notes that during the global financial crisis, rents fell 2 per cent while house prices fell 18 per cent. It says that this resilience will continue, and so sees rents rising 13.6 per cent by the end of 2024 rather than then 15.4 per cent it quoted before.

“Taking this together with our price forecasts, it suggests rental yields will be slightly lower in 2024 relative to today, in line with lower interest rate expectations. However, yields will fluctuate over the short term. This could create attractive opportunities for investors willing to hold for the long term,” says Savills.