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London Residential Market Outlook

London Residential Market Outlook

Key recent trends – 2013

  • The U.K house price index figures that were released by the Land Registry for April 2013 show that London property prices increased by an average of 6.2% between April 2012 and April 2013 and have been seen as a safe haven for property investors – from the UK and abroad. 
  • UK house prices are expected to rise 2.0 percent this year with London prices storming ahead, outweighing the flat outlook envisaged in February according to a poll conducted by Reuters in May 2013. Stronger than expected first quarter GDP date fuelled household confidence. Further, borrowing costs are coming down and banks are expected to approve more mortgage applications.
  • Britain’s economy expected to grow at 0.8 percent this year and 1.5 percent in 2014. Employment growth is surprisingly positive in 2013 but growth has slowed.
  • The price of London homes deemed ‘safe havens’ for rich overseas investors are expected to soar 5.0 percent this year and next as demand in the capital continues to outstrip supply.
  • During a decade-long boom to 2007, house prices tripled but plummeted at the start of the financial crisis, most investors do not see this reaching pre-cash prices for several years. Prime Central London residential prices are now 28% above their prior 2007 peak and across all Central London suburbs prices are 13% above their prior peak.  According to Real Estate strategy and research.
  • Underlying affordability is good and will be a key support to the market if high deposit requirements can be overcome – affordability in terms of mortgage repayments relative to household income is good and close to levels which sparked the early 1990s recovery. Market overall is still thwarted by high deposit requirements, but improving lending conditions and government ‘Help to Buy’ initiatives are helping.
  • Strong rental data: thwarted first time buyers have been sustaining rental demand. Data confirms the strength of rental demand with rents rising 8.3% in London over 2012 and 4.6% for the England average. Strong rental growth and slow price growth is helping to make residential yields increasingly more attractive to investors and compare well with 10 year bond yields/equity market dividend yields. Real Estate Strategy and Research

Investor interest: Buy-to-let investors remain inactive but sentiment is improving, with increased institutional interest in the residential sector

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