Prime central London house prices ‘poised for bounceback in 2021’

House price growth at the top end of London’s housing market is poised to bounce back in 2021 following Brexit uncertainty, a report predicts.

But over the next five years, price growth in the prime housing markets in other parts of Britain will outperform London, according to forecasts from real estate adviser Savills.

The prime housing market broadly refers to the top 5% of homes by price and quality.

Until Brexit negotiations are complete, the market will remain price-sensitive and driven by needs-based purchases, Savills said.

Savills said prime central London house prices are expected to grow by 12.4% in total between 2019 and 2023.

Over the same five-year period, prime property prices are expected to increase at stronger rates elsewhere – by 15.3% in the Midlands and North, by 14.8% in wider southern England and Wales and by 14.2% in Scotland.

The prime housing market within half an hour’s commute to London is expected to see 9.3% price growth between 2019 and 2023 and prime homes within an hour’s commute to London are predicted to see 10.9% growth in values over the same period.

Lucian Cook, head of residential research at Savills, said: “Our five-year projection may look ambitious at this moment of peak uncertainty, but it looks pretty modest when viewed against history.

“And history tells us that, when prime central London house prices bounce, the speed of that bounce can take the market by surprise.”

Following falls of 5% and 1% respectively in 2018 and 2019, Savills predicts that house prices in prime central London will be unchanged in 2020 – before increasing by 6% in 2021. Further increases will follow in prime central London in 2022 and 2023, it predicts.

Mr Cook said greater certainty by the end of 2020 will clear the way for values to rise.

But he warned: “However, a number of constraints – rising borrowing costs, increased taxation, higher investment returns on competing assets and a general election in 2022 – point to a slower rate of recovery than in previous cycles.”

Savills said recently-announced Conservative proposals for a stamp duty surcharge of between 1% and 3% to be imposed on sales of property to foreign nationals who do not pay UK tax is expected to add to buyer caution in the short-term.

But, it argued, Brexit has not fundamentally altered the reasons why people want to live and invest in London.

Mr Cook said: “Those buying the most expensive homes in central London are often less concerned about rental yield and total return, but driven by the appeal of owning a piece of prime real estate in what is widely seen as a great city to live.”

He added that prime housing markets in wider Britain look good value compared with London – leaving greater wriggle room for prices to grow.

A property bought for £1 million in prime central London in 2007 is now worth £1.37 million now typically, he said, compared with £911,000 in the Midlands and North and £876,000 in Scotland – a £494,000 potential equity gap.

Buyers will recognise this relative affordability over the next five years, he said, as prime house price growth in parts of Britain out-performs London.

Mr Cook said: “Buyers see that the price gap between London and the country markets has probably stopped growing, so are more willing to sell up and make the move out.

“But, rather than extending their borrowing, many are looking to buy a bigger home and potentially reduce their mortgage at the same time, capping price growth at the relatively modest levels we are forecasting.”