Overseas investors continue to eye prime London

Buyers from Greece, Spain and Italy have a growing presence in the market, with 20% of all buyers in central London currently from abroad. This figure rises to between 35 – 40% for properties valued above £5million. However, the vast majority of these buyers have a connection with the UK and are making purchases from an informed position.

The pace of growth in the London market has slipped over recent months, with activity in the housing market taking a backseat to the Jubilee and the approaching Olympics.

The current low volume of homes for sale is likely to persist over the summer which, combined with ongoing uncertainty, means house prices are set to grow by 2 – 3% in 2012. While subdued in historical terms, this is a positive outcome for the market in the current climate. Cluttons said it anticipated UK house prices would fall by close to 3% this year, followed by a marginal further fall of up to 1% in 2013.

Sue Foxley, head of research at Cluttons, said: "The Central London market remains buoyant, but even London activity is slowing relative to its performance in 2011.

"The outcome of the current euro zone crisis is not yet known, which is denting confidence and encouraging London property owners to retain Central London residential assets in the face of instability in the residential markets.

"At the same time, strong demand from international buyers seeking a safe haven is creating even more competition for homes and sustaining prices. Whatever the outcome of the euro zone crisis, buyers and investors are demonstrating faith that London is well positioned to see a faster return to growth than most of its European counterparts."

The Central London rental market continues to slow following the unsustainably high growth witnessed last year, but despite the current readjustment Cluttons remains positive about the medium-term prospects for the sector. Demand is strong and the ongoing difficulties faced by prospective first-time buyers in saving for a deposit and securing a mortgage will support rental values.

Cluttons said it expected rental growth in the prime market would increase by an annualised average of 3% over the next five years to 2016.

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