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House prices in central London set to rise 18% in next five years and rents by 19.5% as market moves forward after the UK’s general election, it is claimed. The latest analysis says that unprecedented uncertainty surrounding last month's election saw a stifling of house price growth across London, with the rate of house price growth at less than 4%, compared to the 9.6% increase seen in 2014. The emergence of the capital as a political scapegoat, with potential rent caps and a mansion tax being discussed, contributed to the sense that London households would bear the brunt of any tax changes, it points out. However both issues have now subsided, following the surprise majority win by the Conservatives, according to international real estate consultants Cluttons. Despite this, the damage done to domestic and international buyers' confidence was reflected in a sharp tailing off in demand during the first quarter of 2015, with both vendors withdrawing properties and buyers adopting a wait and see approach. ‘There is no doubt that the results of the general election have helped to re-inject confidence into the market that had receded early on this year,’ said Cluttons' international research and business development manager, Faisal Durrani. ‘The outlook for the London housing market has stabilised, while buyers and vendors have returned to the market following a conspicuous absence of activity. Our outlook for the rest of the year is for increased stability in the market and a return to a more normal state of activity,’ he added. The report also says that despite the Mortgage Market Review (MMR) contributing to a 16% year on year dip in home purchase loans in greater London to March 2015, affordability appears to be improving slightly, with the average loan size dipping to 3.86 times annual income in the first quarter of 2015. Risks still remain on the international front however. ‘International risks such as the threat of another Scottish referendum, a disorderly Greek exit from the European Union and a potential Brexit mean that the market has moved from a situation of having several unknown unknowns to being left with a handful of known unknowns. A Brexit remains the biggest threat as the impact on the economy is the biggest unknown at this stage,’ Durrani explained. Cluttons forecasts modest central London house price growth in 2015 of between 2% and 3%, before accelerating to nearly 5% in 2016 and stabilising at around 4% per annum between 2017 and 2019. Cluttons expect this level of growth to deliver cumulative capital value appreciation of almost 18% over the next five years. The prospects for the prime central London rental market are stable, with average growth of 4% per annum forecast for the next five years. Cluttons explains that affordability and the desire to purchase remain key challenges for the capital's rental market and while supply levels are rising, the strong rate of job creation in London will help in absorption rates. ‘The more subdued growth forecast… Continue reading →

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