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Prime residential safe for those with cash – Savills

"We are now past that point meaning that we can forecast five-year price growth with some certainty even if it is more difficult to forecast the short-term impacts of supply and demand on values over the next 24 months.

"The price growth of 2009 has taken most market commentators by surprise and few, if any, expected demand from equity rich buyers to return so strongly and so quickly, particularly in the mainstream. It is the imbalance between low supply and high cash-driven demand that has driven prices upwards. In mainstream markets, therefore, conditions are currently far from normal."

Correspondingly, over the course of 2010 prices are expected to soften as pent up demand from cash-rich buyers will begin to be satisfied and stock shortages will ease.

This could result in a brief period of headline-grabbing price falls – up to -6.6% – around the mid-year point, with modest growth (+2.7%) in 2011. However, the longer term prognosis is for a return to price growth in mainstream markets, with the average UK house price values expected to rise by 27% over the period 2012 to 2015. This would leave the average UK house price just under £200,000, over 7.5% higher than at the peak of the market towards the end of 2007.

The prime markets, broadly the top 5% to 10% of property, are less mortgage reliant. Owners have a greater equity cushion and as a result these markets are less susceptible to the drag of a slow economic recovery. Therefore, while a small fall in values of 1.0% is forecast next year, this is expected to be followed by a much earlier return to sustained price growth.

Prime central London price growth is expected to total around 18% and 35% over the next three years and five years respectively, with equivalent figures of 14% and 30% in the prime regional and country house markets.

Barnes added: "With a spring election in the offing, the effect of changes in both domestic and non-dom tax changes yet to be felt, and the jury still out on whether the recovery in global investment markets is sustainable, there are still uncertainties in the market. A self-sustaining period of house price growth could still be some way off, but the market has seen the bottom and greater price stability is expected.

"Our forecast definitely augurs against short-term speculation in housing towards more medium and long-term holding of high value stock. One thing that the prime housing markets prove – even in a period of volatility – is that, over the long term, any commodity in short supply will continue to outperform the average."

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