Weak growth in London property prices compared to the rest of the UK is set to characterise next year according to estate agent, FPD Savills.
Despite predicting an overall UK house price growth of 12%, prime London properties will only see a rise of around 4%.
Richard Donnell, head of the residential research department at FPD Savills, said there had been a shift in the UK housing market away from London and the South East. He said high levels of affordability were driving prices in the North while low levels of affordability were creating a slowdown in the South East. In the past, the reverse had been true.’
Donnell said the change in the economic environment has meant there has been a house price readjustment, compared to the rises over recent years. He commented: ‘The downward shift in interest rates from an average 11.5% over the 1980s to an average of 5.5% over the nineties has given households a huge boost to spending power when it comes to buying a house.’
However, looking at next year’s forecasts, the Centre for Economics and Business Research said it felt London prices would fair better than FPD Savills suggested, and rise at just under 9%. But in the longer term the view was not as good. It said by 2006, prices in the capital would have fallen back to their 2002 level. Underlying drivers in the capital for such a move would include increases in unemployment from a low of 4.2% in 2001 to 5.8% in 2003, and rising payments of local tax including congestion charges of 18% in 2003.
Although there had been large price rises across the country, Donnell said only now was the rest of the country catching up with London and the South East. The only threat he could see to rises in the rest of the country not being above 10% in 2003 were a large rise in interest rates or unemployment, although he said neither were forecast.