The gap between the performance of prime central London and the mainstream housing market is set to widen further in the next few years as the division between borrowers with equity and those without becomes a permanent feature of the market, agents say.
The value of the capital’s upmarket properties is expected to rise 33 per cent by the end of 2015, compared with a UK average of just 12 per cent, according to Savills’ latest annual house price forecast, published this week.
The estate agency said there had been a fundamental change in the structure of the housing market as constrained availability of mortgages has become a permanent feature.
As a result, Savills has introduced a new range of sub-tiers to further distinguish between the performance of different parts of the housing market.
It has adopted the use
of commercial property classifications of Grade
A – the most desirable, owner-occupied properties; Grade B – the average house; and Grade C – poorer quality, tenanted homes. All three grades
of homes can be found
in prime, secondary and
tertiary locations across
Savills said there will be significant differences in the extent and timing of performance between different grades of stock. Large, well-built family houses appealing to equity-rich owner-occupiers will perform much better than a small flat, which will be valued solely by investors and will no longer be in demand by first-time buyers, who will be unable to obtain mortgage finance.
“There will be a very clear distinction between prime and mainstream markets over the coming five years, distinctions that will be further compounded
by the very divergent performance of Grade A and Grade C properties,” said Yolande Barnes, head of research at Savills.
Savills believes Grade A will outperform the average house price by 5 per cent over the next five years, while Grade C will underperform by the same margin – a difference of 10 percentage points between the different types of property in the same location.
Other estate agencies agreed with Savills’ outlook.
“Any property that was the typical purchase of a first-time buyer or even those looking for their second home are the ones that are going to struggle over the next few years,” said Adam Challis of Hamptons. “The normal demand for these properties won’t be there any more.”
The performance of the mainstream market will largely be governed by the availability of mortgage finance, said Stuart Flavell, chief executive of Connells, the estate agency.
Savills expects mainstream values to fall a total of 7.3 per cent between
mid-2010 and the end of 2011. However, it believes the market will only
experience a “second slip”, rather than a deep double dip as some economists have predicted.
This echoes the findings of other housing market indicators, which have shown signs of the housing market tipping downwards.
On Thursday, the Halifax House Price Index showed that house prices had fallen 1.2 per cent in the past three months, the most rapid fall since mid-2009. Last week, Nationwide reported a 1.5 per cent decline in the past three months.
“We do not believe that prices are set to fall sharply over a sustained period. Interest rates are likely to remain very low for an extended period, which will continue to support the improved mortgage affordability position for homeowners,” said Martin Ellis, economist for Halifax.