After years of price falls and sluggish activity, the most expensive homes in central London will rise in value by 8pc in 2020. Between 2018 and 2022, prices are forecast to grow by 20pc, which would recover the fall of 15pc made since 2014.
We believe the risks regarding London’s position as a global commercial center have been overplayed. Whatever the challenge from other cities, London will almost certainly remain a key global financial center and develop as one of several European hubs for the growing tech sector.
Its prime markets will therefore benefit from new domestic wealth generation as well as attracting wealthy international buyers. However, it forecast that this house price growth will be more moderate than in the past, when there was average annual price growth of 5.7pc above the rate of inflation between 1979 and 2014. This is partly due to much higher levels of stamp duty on expensive property.
Before the UK's relationship with the EU is decided there will be flat levels of house price growth as investors put off purchases due to the uncertainty. House price growth in expensive areas of London outside the center will also be more moderate, at 5pc in 2020, partly because the market is more influenced by trends in the high value employment sectors such as finance, banking and tech, as well as the availability and cost of mortgage finance.
When the chancellor first announced the new stamp duty hike last year, the majority of potential homeowners and investors expected the property market to cool off and for prices to go down across the board. This policy was especially supposed to hit the lower end of the market, such as studios and one bedroom apartments, which are most popular with investors. The scheme was supposed to help first time buyers get on the property ladder by making the buy-to-let market less attractive for investors. However, ahead of the stamp duty increase the market has increasingly moved in the opposite direction. A number of factors has kept demand high such as a better availability of mortgage products, and a higher numbers of deposits gifted by family members.
It’s not just demand…
We are seeing a severe shortage of one-bedroom apartments in all areas which has pushed prices up and they are continuing to rise, according to Rightmove supply was down by 1.5% year on year. Despite the increase in stamp duty, investors are still keen to purchase one-bedroom flats because they make good long-term investments due to their higher yields, potential for capital gains and consistently high demand from tenants. At this point it’s safe to say the tax hike hasn’t had it’s desired effect on the property market, especially in hotspots such as London and the South East.
It remains to be seen now that the tax year has ended whether the Chancellors policy will have its desired effect on cooling the UK property market. However, it is clear to see that currently, first time buyers are finding it harder than ever.