A decline in mortgage rates has prompted a forecaster to reverse its predictions of a fall in UK house prices in 2024, instead suggesting the average cost of a property could rise by £61,500 over the next five years.

The property company Savills had forecast in November that it expected the average price of a home to fall by 3% this year because recent rises in the Bank of England base rate had heightened the affordability pressures on would-be buyers.

However, although the base rate remains at 5.25%, competition among mortgage lenders has forced the cost of borrowing down since, prompting more activity in the market. As a result, Savills now expects the average price to rise by 2.5% in 2024 to £292,000.

Although it has adjusted some of its longer-term forecasts downwards, it said it expected growth every year up to the end of 2028, when it predicts average prices will have risen by £61,500, or 21.6%, to £346,500.

The number of homes it expects to change hands this year has also been revised upwards, from 1.01m to 1.05m.

Lucian Cook, the head of residential research at Savills, said: “The outlook for 2024 has improved since our last [November 2023] forecasts as mortgage costs have nudged down slightly and are much less volatile. The outlook for economic growth has also slightly improved, pointing to relatively modest house price growth this year, with greater potential over the following few years.”

It is widely believed that the Bank base rate has reached a peak, but while some economists predicted a cut as early as March, at their last meeting policymakers voted to wait to make sure inflation continues to fall, and they are expected to again hold rates when they meet this Thursday.

Cook said a 75% two-year fixed-rate mortgage from Nationwide building society priced in November at 5.35% had fallen to 4.84% this month, while a five-year deal had dropped to 4.5%.

Those deals are no longer available as Nationwide and several big lenders have repriced deals upwards in recent weeks, but rates are still below November’s prices.

“The highly competitive nature of the mortgage market has meant that lenders have fairly aggressively priced in the prospect of cuts in bank base rate, causing buyer confidence, and prices, to recover somewhat,” Cook said. However, he said rising prices this year would feed through to further problems with affordability in future.

In London, where prices are at their highest, Savills is predicting a 14.2% rise in prices over the next five years, while in the north-west of England and Yorkshire and the Humber, where prices are lower, it is suggesting growth could be about double that.

Separate figures from the rival estate agent Knight Frank show prices in London’s most expensive postcodes have fallen by 2.6% over the past year.

It said despite a large proportion of cash buyers, sales in prime central London markets “have not been immune to the pervading mood of hesitancy” caused by fluctuating mortgage rates.

Tom Bill, the head of UK residential research at Knight Frank, said: “The close relationship between the cost of borrowing and demand in recent months is evident across the whole of London. The number of offers made was 14% below the five-year average (excluding 2020) in April, underlining how demand has weakened.”