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‘Perfect storm’ looms for UK house prices

Geo-political issues will continue to push overseas buyers into London, especially at the top end of the market, as the capital is seen as a safe haven

The prime central London market will remain “de-coupled” from the rest of the UK market.

In real terms, adjusted for CPI inflation, house prices will have fallen 29% from the peak of the market by 2015 and will not regain the levels seen 2007 levels until 2028

Prime country house prices will slip by 2.8% next year before returning to growth in the mid-term following the establishment of more convincing UK economic growth from 2013 and beyond
Grainne Gilmore, head of UK residential research at Knight Frank, said: “After falling by 15% in 2008, it was widely forecast that the market would dip again the following year, but this failed to happen – largely because of the drop in interest rates. We believe that this correction is still to come, but that it has been pushed further and further out because of low base rates. But next year, amid a “perfect storm” of a struggling economy, public sector cuts and rising unemployment, prices will fall. As interest rates start to rise, prices will struggle to maintain any notable growth until 2015.”
Commenting on the Prime London property, Liam Bailey, head of research at Knight Frank, said: ”Prices in prime central London are currently at an all time high, despite which we believe there is scope for further price gains over the next 12 months, averaging 5% across 2012. The reasons which have underpinned recent growth, a weak pound, renewed wealth creation in emerging markets, the search for safe-haven assets and flight capital – all seem set to continue at least in the short term reinforcing our positive view for next year.”

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