Is there a property boom brewing in London? by Marc Da Silva


Monday 8th November 2010

Is there another property boom brewing in London? Historically in Britain, residential property prices demonstrate a distinct spatial pattern over time, rising initially in a cyclical upswing in prime central London, then wider London and the south east, before spreading out over the rest of the country. This is known as the ripple effect.

A glance at the market in prime central London suggests that a mini boom is occurring which could eventually benefit homeowners across the capital.

According to the latest research released by property consultants Cluttons, homes at the high-end of the London property market are defying the wider housing market slowdown by proving big sellers.

Despite the recent lull in the market, Cluttons report that residential property prices across some parts of prime central London, in the capital's priciest areas, are rising, with some sought-after homes achieving in excess of the asking price.

Demand for homes in prime London is being fuelled by the return of bonuses in the city, along with a rise in overseas buyers, while the supply of new homes coming onto the market remains low.

This strong demand is expected to ripple out to other parts of London and the south east of England, once property prices further out of the city centre start to look increasingly attractive in relation to values in the prime market.

The prospect of capital growth is an attractive proposition for property investors and homeowners looking to one day move up or down the housing ladder. For a lot of people, property has become part of their investment strategy. With saving interest rates at a historic low and private sector pensions in a rather sorry state, many people are now relying on their homes to fund their retirement.

Over the next few days and weeks, a wide range of property experts will make their projections for the property market next year and beyond. Will prices rise or fall?

The media is likely to paint a gloomy picture for the housing market in 2011. Initial signs are that the property market nationwide will remain somewhat subdued, with the exception of some parts of London, where property prices are expected to remain relatively stable or show modest growth.

But medium term prospects for future capital appreciation look good and this should eventually ripple out to wider parts of the country in 2012 and 2013, but not before prices in London and the south east have initially risen in value.

High-end Mortgages

Investec Specialist Private Bank (Investec) has seen a 46% increase in the number of mortgage deals it has completed between June and August compared to the first three months of 2010.

While this increased demand for its high-end mortgages, of £1m or more, is due in part to inflexible lending criteria used by other banks, it also further demonstrates a greater appetite for homes at the high-end of the property market.

Investec generally offers highly personalised mortgages based on the income and wealth of the individual client, but set within tight affordability parameters.