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Desperate buyers encourage London homeowners to test market

Some areas of London are already seeing capital values rising to 10% above the Q3 2007 peak.

Cluttons has revised its annual forecast for national house price growth upwards to 3.5% as prices show a greater deal of stability. This contrasts with London’s soaring sales market where the forecast has been revised upwards to a massive 8.7%.

In the rentals market, new tenants are now paying between 20 to 25% higher rental payments than that paid by previous occupants.

Rental property for "would-be" first-time buyers continues to push up demand. This highly active rental market outperformed Cluttons’ expectations, with annual growth hitting a record high of 20.4%.

A severe supply shortage has been exacerbated by stable but buoyant demand. In fact, some parts of London are reporting a growing number of renters from North Africa, fleeing the unrest as a result of the Arab Spring.

Market resilience has also prompted existing tenants to seek renewals, rather than relocate. Average rental uplifts at renewal range from an extra £10 per week to an additional 10% per annum.

Landlords are keen to maximise their returns as they are conscious of the fact many tenants, bound by financial constraints, have no option but to continue to live in rented accommodation either having been priced out of the sales market or unable to locate a suitable property due to supply drought.

With all this in mind, Cluttons has made a slight upward revision of its rental growth forecast. Average current rents are 9.2% higher than their peak levels in March 2008 and lettings values are on track to end the year 30% above rental levels experienced during the bottom of the market in December 2009.

Andrew Forrester, Head of Residential consultancy division, Cluttons, said: "It is good to be able to report that national house prices will rise to better than previously expected levels during 2011. A sharp decline in new instructions contributes towards a severe supply drought which is forcing values upward.

"It is clear there will be no summer slow down this year with one of the most active rental markets the UK has ever seen. Larger investment landlords, particularly in London, will benefit from increases in demand, restrictions in supply and the subsequent increases in rents.

"Record annual growth of over 20% is calling into question tenants’ abilities to move to different rented accommodation, further restricting supply. And with job insecurities and depleted household incomes still a major factor, financial pressure for the 3.3 million households in the private-rented sector will persist.

"Although currently very buoyant, Cluttons expects rental growth to slow down from 2012 in line with historic growth trends."

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