Savills 2014: The Rich Get Richer

An average ‘Prime London’ home costing £1.4m before the downturn will be valued at £2.7m in 2018 according to Savills.

Meanwhile the firm forecasts a typical north west England home worth £136,000 in 2008 will be valued at just £165,000 in five years time.

“Cash will remain the driver, and the gulf between equity-rich locations and the rest will persist” the firm predicts in its forecast for 2014 and the following four years.

As has become increasingly the case with Savills in recent years its forecast is dominated by London and high-end markets, especially those in and close to the capital.

So for London it says:

- PCL is now looking more ‘fully valued’ than other prime markets and prices will rise three per cent in 2014 with outer prime areas of London increasing six per cent;

- there will then be what Savills calls “an election year lull” with small falls possible in 2015;

- five year growth across all prime London will be 22.7 per cent with what it calls ’prime suburbs’ and the ‘inner commuter belt’ will grow more, at 26.3 per cent over five years.

“The gap between prime central London and its prime commuter markets has probably peaked and wealth has finally begun to flow out of the capital” says Sophie Chick, one of Savills’ analysts.

“We’ve already seen the predominantly domestic markets of outer prime London outperforming prime central London over the past year and anticipate that 2014 will be the year when the value gap between London and the lead suburbs and prime inner commuter belt finally begins to narrow” she says.

Chick adds, in a phrase perhaps made for journalists than for anyone else, “We expect 2014 to be the year of the super suburbs.”

For the national mainstream market it says:

- mainstream London to show more growth over five years than PCL;

- mainstream south east England to grow 31.9 per cent over five years;

- fears of a bubble have been “hugely overstated” because growth of around 25 per cent over five years (assuming interest rates not exceeding five per cent) would be sustainable;

- unexpectedly, Savills defines what it would regard as a bubble, that is 35 to 40 per cent price growth over five years with seven per cent interest rates. “A very unlikely scenario” it says;

- over the next five years average mainstream prices in the regions will grow thus:

- London 24.4%
- South east 31.9%
- South west 29.4%
- East of England 30.7%
- East Midlands 24.6%
- West Midlands 23.4%
- North east 17.6%
- North west 19.3%
- Yorkshire and Humberside 20.5%
- Wales 21.0%
- Scotland 19.3%.

Savills also expects transaction levels in the mainstream market to increase by 27 per cent over five years “though this will leave them 24 per cent below a fully functioning market” - presumably meaning the market only fully functions when it reaches pre-downturn norms.

“In the short term Help to Buy is likely to increase transaction levels by around 12 per cent per annum over its three year lifespan but we expect transactions to fall back once the scheme ends and for house price growth to occur against the backdrop of continued increasing levels of private renting” says Lucian Cook, Savills’ head of UK resi research.

For the national rental market Savills says:

- demand for rented accommodation to grow by one million households in five years;

- five year rental price growth of 21 per cent across the UK and 25.8 per cent in what the company calls mainstream and prime London;

- “Prime London rents to underperform capital growth slightly as more new-build investment stock is brought to the market and corporate budgets shrink”.

“Help to Buy will allow some trapped renters to access home ownership even though costs of home-ownership will exceed those of renting. Its impact on rapidly rising rental demand will be limited, most notably in London where almost 26 per cent of households currently live in the private rented sector, having risen 79 per cent since 2001” says Cook.

“This makes the London mainstream market a particular target of buy to let investors with equity and institutions whose interest in residential has been reawoken. It also highlights an urgent need for local and national government incentives to ensure the delivery of new rental stock in volume.”

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