Cluttons London housing market predictions

The sales market is approaching the bottom of the cycle and prices will have fallen sharply by early 2009, reports London estate agent Cluttons, who is predicting the beginning of a recovery in transaction activity next year.

House price indices are currently behind the market, and Cluttons expects to see prices dip to 20 - 25% below the peak price of August 2007 by early 2009. Prices will then stabilise and bottom out at 25 - 30% below peak prices over the following twelve months as investors and temporary renters begin to see value and return to the sales market. This will deliver greater competition for well-priced properties amongst buyers who have large deposits and spotless credit ratings.

There are plenty of buyers in London who have built up considerable equity in their homes over the last ten years, who are preparing to take advantage of price falls on more expensive properties and upsize. Many buyers, who have been in temporary rental accommodation over the last year, are also preparing to re-enter the sales market as soon as prices begin to plateau.

Richard Cotton, Divisional Head of Residential Agency at Cluttons, comments: "While 2009 will undoubtedly be another turbulent year for London's property market, with transaction volumes remaining historically low, I believe we are approaching a turning point in terms of price falls. There are lots of buyers watching the residential market very closely, and they are desperate not to miss the floor when it arrives.

"Over the past month, sellers have been considerably more realistic about pricing their property to sell, and we are experiencing an increase in registrations from buyers searching for properties with reductions in the region of 25% from peak prices. There are fantastic opportunities to be had, and this will pave the way for the return of the investor in early 2009, in particular those multiple buy to let landlords with equity in their portfolios, wanting to take advantage of low prices and the cheaper mortgages available to them as a result of their strong equity position"

There will be a fall off in demand for rental accommodation throughout 2009 with the increasing level of unemployment in the capital weighing heavily on demand. This fall off in demand will be tempered somewhat by increases in demand from first time buyers struggling to secure finance and those who are nervous about committing. Rents will continue to slip as they have done throughout autumn 2008, as a result of increased supply; however, yields will continue to firm up as rental income in relation to the property prices strengthens.

Richard Cotton adds: "I expect the London lettings market to remain active in 2009, but the supply-demand imbalance will worsen as would-be sellers decide to let their properties and investors snap up cheap rental stock, whilst demand falls as the London economy and jobs market continue to suffer. This is good news for tenants who face the greatest choice of property they have enjoyed for years, combined with cheaper rents. Defaults are on the rise; however, as tenants suffer the effects of the economic downturn and rising unemployment, so sensible landlords will ensure they are well protected by insurance in 2009."