With demand from buyers continuing to heavily outstrip the supply of new homes in Greater London, residential property values in the capital, currently at a historic high, are expected to appreciate further this year, according to a new report.
According to Cluttons' Residential Property Forecasts - Q3 2013, the average price of a home in Greater London is set to grow by 6.9% this year. This should be followed by an annualised rate of 3.2% over the next five years as the government's Help to Buy scheme is extended to all homebuyers from next year bringing more financed buyers to the market without an equivalent increase in housing stock.
The consequence of this pace of uplift in house prices will push ownership in and around London out of reach of yet more households.
Even in London, where earnings tend to grow slightly ahead of the national average, it is unlikely that average earnings will keep pace with this rate of house price growth over the next two years as the economy struggles back to strength.
Property price growth in the capital is expected to be led by prime Central London, where Cluttons has revised its forecast of 5% property price growth to 8.4% this year with an annualised average of around 4% to the end of 2018.
Credit ratings agency Fitch has also warned that Help to Buy could artificially push up house prices without increasing the number of new homes built, which corroborates Cluttons' expectations of affordability re-emerging as the central issue for buyers given that mortgage lending has improved.
Sue Foxley, head of research at Cluttons said: "Improved consumer confidence, an easing in mortgage credit and the raft of government policy intervention measures to bolster new buyer demand will drive further capital growth and this has led us to revise our forecast to 8.4% price growth this year.
"The prospect of rising base rates over the medium term proffers a further concern with the ratio of residential values to gross earnings already over seven in London. With few signs of a dramatic increase in supply that would have the potential to change the balance of this equation, the rental market will inevitably move up the agenda for London's households and policy makers."