The London Property Market – What’s in Store for 2018 and Beyond

Property News

It used to be the case that when the London property market sneezed, the UK property market went running for its cold and flu remedies, but now Knight Frank’s UK Housing Market Forecast suggests that in 2018 it is the London housing market which will be slightly under the weather, while the rest of the UK housing market continues its upward trajectory.

A short and shallow dip before recovery begins

It’s no secret that the London housing market has been slowing down recently. Knight Frank forecasts that this slow down will continue into 2018 with a further drop of 0.5% and then begin to recover in 2019 with prices rising from then on to the end of the five-year-forecast period in 2022. Overall, Knight Frank expects London house prices to increase by 13.1% by the end of 2022. This puts London in third-lowest place in the regional table, just ahead of Yorkshire and Humber (12.6%) and Scotland (12%) and well behind the strongest-performing region, the North West, which is forecast to see cumulative price growth of 16.4%. It should, however, be noted that, as usual, there are likely to be variances within the London property market, with central London locations generally performing better than outer London locations.

The London housing market is driven by political winds

While political considerations will play some kind of role in most, if not all, UK housing markets, the fact is that as the de facto national capital and headquarters of the financial services industry, London is the place which is most exposed to political upheaval in general and the consequences of a hard Brexit in particular. London is also highly exposed to the possibility of stagnation brought on by the Brexit negotiations continuing for longer than the expected two years and of geopolitical events causing an economic slowdown, especially in the financial markets. Lastly, but not least, the fact that London property prices have long been consistently the highest in the UK means that the London housing market tends to be hit especially hard when new property taxes are introduced and/or existing ones are raised. Knight Frank has also identified this possibility as a risk to the housing market.

Interest rates and affordability

The last of Knight Frank’s key risks to the property market is that of interest rates rising further and/or faster than anticipated. In practical terms, for this to happen, inflation would have to become a serious concern, forcing the Bank of England to take action to rein it in. If this were to happen, then the key question from the point of view of property prices would be whether wage growth made it realistic for people to service mortgages even at higher interest rates. If it did, then demand would be expected to remain strong regardless of the increases. Having said that, Knight Frank has noted that the lack of supply in the UK housing market is unlikely to be fully addressed in the near future and therefore it is to be anticipated that there will continue to be a meaningful level of demand.

Author Bio
Fletcher Day are a full service commercial law firm based in Mayfair, with a dedicated team of property lawyers in London specialising in acquisitions, property financing and commercial property licensing.

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