Capital's house prices to rise 4.3% this year, says DTZ

House prices in London are set to increase by 4.3% this year as the rest of the country sees falls, according to DTZ's latest 20-year price inflation forecast. Across the rest of the UK, DTZ expects house prices to fall by 1-5% in 2011.

The agent's forecasts, which extend to 2030, indicate that growth in London house prices will accelerate over the next decade, with price inflation peaking at 10% early in the decade starting 2020.

According to DTZ, London house prices increased by around 5.5% in 2010, ending the year just 3.5% down on the peak reached in January 2008, despite a 16.1% fall in the period to May 2009.

DTZ reports that, while tighter lending criteria, slow economic growth and increased competition from other financial centres mean London is unlikely to see the same rate of growth achieved during the previous cycle, a number of factors will continue to drive up prices.

In particular, the agent said residential property in London remains an attractive proposition for investors looking for protection against public spending cuts. DTZ said the capital has the smallest exposure to public-sector employment in the UK, at just 23% compared with 27% nationally.

Additionally, anticipated growth in private-sector employment will ensure that mortgage lending remains highest in London, while the resurgent annual bonus round will provide a regular injection of equity into the market.

Low interest rates will enable those able to borrow to do so cheaply in the short term, even though rates will start to creep up.

Chris Cobbold, head of the residential practice group at DTZ, said: "London is an internationally orientated economy, and therefore stands to benefit from reasonably robust global growth. With relatively little reliance on public-sector employment, a resurgent financial sector and rising rental values, lenders, investors and buyers are more confident of long-term capital growth in London than anywhere else.

"Demand is supported by strong interest from overseas buyers, while population growth is set to exceed anticipated housing supply. Mortgage lending has recovered to a greater degree in London than in the rest of the UK, and the rising costs of commuting from outside London will make homes in the capital more attractive. Overall, we expect to see continued growth in London prices over the next decade, over and above that which will be experienced by the rest of the UK."

 EGi News