U.K. home values will fall 5 percent in 2012 as buyers are deterred by government job cuts, rising unemployment and low wage growth, real-estate broker Knight Frank LLP said today.
The drop will be the first since 2008 and growth won’t return until 2014, when prices will rise by 1 percent, the London-based broker said in a report. Declines will be sharpest in Scotland, Wales and northeast England.
“The housing market is buckling but not diving,” Grainne Gilmore, Knight Frank’s head of U.K. residential research, said in an interview. “There’s a lack of economic growth, more public sector job cuts in the north and planning approvals are struggling.”
Gross domestic product rose at an annual pace of 0.6 percent in the second quarter, down from 1.6 percent in the first three months of the year, as the government implements the biggest cuts since World War II to trim its budget deficit. Unemployment climbed to a 15-year high of 8.1 percent in the three months through August.
The U.K. home prices dropped 14.7 percent in 2008 during the last residential real estate slump, Knight Frank said. Prices in Wales will slide 6.7 percent next year, followed by Scotland and northeast England with falls of 5.9 percent each.
Average home values in London will fall 3.7 percent next year, the smallest decline anywhere in the U.K. Prime properties in the center of the capital will rise 5 percent and homes in neighborhoods such as Knightsbridge, Mayfair and Kensington will be little changed in 2013 before rising 4 percent in 2014.
“The London market has benefited from a weak pound and growth in global wealth portfolios, demand for international education opportunities and demand for ‘safe haven’ assets on the back of recent geopolitical concerns,” Knight Frank said.
The British Pound has depreciated 22 percent against a basket of currencies in the last four years, a Bank of England index shows.
The number of houses and apartments that sold for more than 5 million pounds rose to 262 from 200 in the nine months through September, London-based property broker Savills Plc said earlier this month.