U.K. Home Prices to Fall Next Year as Government Cuts Bite, Savills Says
U.K. residential-property values will fall 2 percent next year as government spending cuts sap the confidence of would-be buyers, Savills Plc (SVS) said.
The steepest declines will be Scotland and northeast England, where prices will plunge 4 percent and 2.5 percent respectively, the London-based broker said in a report today. At the other end of the scale, homes in the U.K. capital will lose 0.5 percent of their value, Savills forecast. The market will start to recover in 2013, the company said.
“The government’s austerity measures have affected household finances and home-buyer confidence, so the real casualty of this housing market downturn has been transaction levels,” Lucian Cook, a residential research director, said in the report.
Prime Minister David Cameron is cutting jobs and freezing pay in the deepest fiscal squeeze since World War II. This will lead to the first drop in home prices since 2008, according to Savills. Knight Frank LLP, another U.K. broker, last month predicted residential property values will decline 5 percent next year and growth won’t return until 2014.
About 850,000 residential sales will be completed in 2011, Savills said. Before the slump, there were around twice as many transactions each year.
Home prices have retreated 9.5 percent since the U.K. market slumped in 2007, Savills estimates. The biggest loser has been England’s northwest with a 14 percent drop, while London prices have shed 2.9 percent, less than anywhere else.
More Renters
Buyers are using more equity for purchases after lenders approved fewer mortgages, Savills said. The deteriorating real- estate market will encourage more people to rent homes next year, fueling a 3 percent increase in lease rates, according to the broker. Savills expects a gain of 4 percent in 2011.
“It is unlikely that supply will keep up with demand -- at least in the next five years,” the company said. Rents will climb 20.5 percent by the end of 2016, Savills said.
The broker said the prospect of rents outpacing property values means that homes are still a good investment.
“We have long been advocates of residential property investment in the private rented sector,” Yolande Barnes, another residential research director at Savills, said in the report. “Until recently, this has primarily been predicated on the expectation of increased capital value, but there is now a strong case on the basis of income.”
Rents for luxury homes in London will gain 4 percent next year, extending an estimated increase of 8 percent in 2011, Savills said.
Haven for Investors
Overseas purchasers have spent about 6 billion pounds on prime London properties during the last 18 months, the broker estimates, driving prices to record highs. Investors have taken advantage of the pound’s weakness to acquire assets that have retained their value during the European sovereign-debt crisis.
“Central London’s residential real estate is increasingly behaving as an asset class, more closely linked to global wealth generation than any domestic indicators,” Barnes said.
Prices in London’s most expensive neighborhoods, including Knightsbridge, Mayfair and Kensington, will climb 3 percent next year, the only increase in the country, Savills forecast. On average, U.K. prime-property values will fall 3 percent, led by the Midlands and north England with declines of 6 percent.
“The U.K.’s prime regional markets have not benefited from a ripple of equity from the capital,” Savills said. These markets “will remain dependent on domestic wealth generation and relocation from London,” according to the broker.
The gap between London and the rest of the country will widen in the next five years. Savills forecast that prime real estate in the capital will appreciate about 23 percent, even though there probably won’t be any growth in 2013. The average increase across the U.K. in that time will be 15 percent.
To contact the reporter on this story: Chris Spillane in London at cspillane3@bloomberg.net.
To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net.
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