With no immediate appreciation in the value of sterling predicted, this advantage looks set to continue.
Cash buyers, both domestic and foreign, are still very much in evidence in the prime Central London market, which continues to be perceived internationally as a safe haven for cash. At the lower end of the market, demand is also being sustained by the greater availability of mortgage finance for first time buyers, particularly in the higher loan to value ratio brackets. In the first seven months of the year, the number of first time buyers purchasing with a mortgage has more than doubled on the same period in 2011.
These factors combined will maintain demand in the prime Central London market and supersede the 0.5 per cent contraction in GDP expected this year. For this reason, Cluttons predicts annual growth of 3.2 per cent, despite the impact of the Olympics, which saw buyers and sellers delay moving plans, dampening the pace of growth.
The expectation of weak global economic conditions, however, will suppress the rate of growth next year, with prices rising 2.5 per cent. Growth of 4 per cent is expected to follow in 2014 and 2015 as domestic conditions improve, lifting the performance of the capital’s housing market. Meanwhile, the wider UK market will see price falls of 1 per cent this year with marginal falls again in 2013 and growth of 1 per cent in 2014.
Sue Foxley, head of research at Cluttons, said:
“The prime Central London property market continues to buck the national trend, putting in a slightly stronger performance than we had previously anticipated. Strong annual growth of 3.2 per cent is forecast in spite of significant downward pressure on prices as the economy continues to muddle through.
“International buyers have long bolstered demand for property in the capital, pushing up prices as the supply shortage continues. However, a growing mortgaged first time buyer market means that we are likely to see increased competition for properties at the lower end, which will have a far reaching effect on the whole of the supply chain. The Bank of England’s Funding-for-Lending scheme also appears to be re-energising the debt financing market, which is very positive news,”
The Central London rental market did not experience the much anticipated Olympic boost from tenants and a moratorium on corporate moves during the games compounded this. However, evidence of a rise in recruitment in June and July suggests a flurry of activity in the autumn. Despite this, a rental growth readjustment is still underway, with a 1 per cent contraction forecast this year. This is largely in response to the unsustainable rental growth seen in 2011. Cluttons expects positive growth of 2 per cent to follow in 2014 and annual rises of 3.5 per cent to 4 per cent in 2014 and 2015.
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