London house prices: property prices in prime addresses predicted to rise by twenty per cent in the next five years

The price of a luxury home in the heart of London is set to climb 20.5 per cent over the next five years after a prolonged spell of sluggish sales and discounting.

According to the Savills annual housing market report, prices will nudge down two per cent in the 12 months to this December.

However, next year will see the first annual price rise (of three per cent) for high-end homeowners in London since 2014.

Property values are then predicted to rise six per cent in 2021, four per cent in 2022 and 2023, and two per cent in 2025 in the capital’s exclusive locations of Belgravia, Knightsbridge, Mayfair, Kensington and Chelsea, Marylebone and Notting Hill.

A hike in stamp duty on multi-million pound homes and Brexit-related uncertainty caused prices to be slashed by a fifth on properties worth more than £2.75 million over the last few years.

These falls will now reverse as luxury dwellings appear to be good value.

“Historically, a recovery in the luxury markets has been sparked in prime central London, when the city’s most expensive properties start to look good value on a world stage,“ says Lucian Cook, head of residential research at Savills.

“Values have been bottoming out over the past year, resulting in a build-up of new buyer registrations over recent months. This signals that the market is set for a bounce, but this is still being held up by uncertainty.”

With a weak pound, the recent price falls equate to a discount of around 42 per cent for overseas property players buying in the US Dollar.

Simon Deen, director of new homes at the estate agent Aston Chase has seen sales to international buyers start to gather momentum.

“Year-on-year growth in the number of transactions in prime central London is not surprising. There is a continued faith in the medium-to-long term stability of the UK,” he says.

Recent sales managed by Deen include a large family home in Primrose Hill to an Australian family, a lateral apartment in Regents Park to a French bachelor and an apartment in Whitehall to a couple from Hong Kong.

But, this will not be a mirror image of the dramatic recovery in luxury house prices seen after the 2008 global financial crisis and housing crash, Cook warns.

This is a “weaker recovery” than in previous cycles due to the higher tax environment and the likelihood that interest rates will gradually increase.

London has also matured as a global city and financial centre - it is still seen as a safe haven for the world’s wealthy but won’t attract the same flurry of investment.

House price growth in Greater London’s mainstream market will be out-paced by prime central London creeping up just four per cent over five years.

Prices across the capital peaked later and have seen much less of a price adjustment.

“This means they have much less capacity to increase, particularly as interest rates gradually rise, when compared to both the prime London market and the mainstream market in other parts of the UK,” explains Cook.

Overall, the average house price in the UK will rise 15.3 per cent over the next five years to £266,000 with the North West, Yorkshire and Humberside, Scotland, the North East and the West Midlands to lead the regional recovery.

Markets further from the capital, such as Leeds, Liverpool, and Sheffield, were much slower to recover after the financial crisis and have greater scope for house price growth relative to incomes, even as interest rates rise.

This shift is typical for the second half of a property cycle when the North outperforms the South, this time helped by multi-billion pound infrastructure projects and talk of the Northern Powerhouse Rail.

Regardless of location, the Savills forecasts assume the election will not result in a significant shift in policy and that the UK ultimately achieves an orderly exit from the EU in 2020 and avoids recession.

They also assume that the bank base rate increases gradually to two per cent by the end of 2024, reining in mortgage borrowing and therefore house price growth.