London house prices outpaced by the rest of the UK

The UK housing market will be divided into a "tale of two countries" as price rises in London slow to less than half the rate of the rest of the country, according to a top estate agency.

House prices in London will rise by 3% to 4% next year, due to the impact of stamp duty reforms at the top end of the market, said Haart estate agents which runs 147 branches across the country.
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But across the rest of the UK home prices will jump by 10% in 2016, due to constraints on the stock of available housing, the agency said.

The London slowdown is attributed to stamp duty reforms in Chancellor George Osborne's Autumn Statement last year, which graduated the property tax for the first time, making homes worth more than £1 million more expensive.

This will depress house price growth in the capital which has a greater proportion of homes at the top end compared to the rest of the UK, Haart said.

Paul Smith, chief executive of Haart, said: "The top end of the property market, particularly in London, will see a price correction in 2016 because of the impact of stamp duty, consisting of a 10% drop in value for homes over £1 million."

"On paper it will look like a tale of two countries as London will see an increase of around 3-4% due to the top-end market correction."

The rest of the UK market will remain highly competitive with 29 buyers chasing each property, as a result of the country's limited housing stock.

Unless the Government takes decisive action to drive up private or public sector house building the situation is not likely to improve next year, the agency added.

In September the Government said it was aiming to build one million new homes by 2020.

This compares with 460,000 homes that were built between 2011 and 2014, according to the National Housing Federation.

Mr Smith said: "The issue could develop into a serious social one if young people continue to be driven out of our major cities.

"This demographic is most likely to provide energy, vibrancy and new ways of thinking so our major economic hubs like London are at real risk if property becomes unaffordable for all but the super-wealthy investors."

The agency said there was a danger of people being driven out of cities like London, Bristol and Cambridge to the regions as a direct result of lack of property stock and rising prices.

Mr Smith said he has seen "no real evidence of a Northern Powerhouse emerging as yet", which is the Government's plan to drive investment to northern cities such as Liverpool, Manchester, Sheffield and Newcastle.

But he added: "If we see the right investment in the Northern Powerhouse it could well take off and we should know more about this after the Spending Review towards the end of November."