H

ouse prices across London are set to rise 24.5 per cent over the next five years as capital’s housing market “bounces back” from the peak of the pandemic.

The average London home will cost £626,000 by the end of 2026 as office workers revert to prioritising proximity to the office and amenities, with demand highest to live in London’s leafy urban villages. This price inflation out-paces national house price growth of 20 per cent over the same period to £324,000, according to a new forecast.

A study from the property group JLL reveals that increased demand to live to the capital after the height of the pandemic, combined with the return of the overseas buyer, will boost the London housing market over the next half decade.

“There is a bounce back in urban demand in London as people once again reset priorities around where they live and opt to stay and move within the city, rather than leaving,” says Nick Whitten, head of residential research for JLL. “In particular we are seeing people buy in those neighbourhoods which have a village feel as they balance convenience and transport with space and greenery,” he explains.

“We are seeing a resetting of the property cycle as the house price rises in rural Britain starts to naturally cool after two years of unsustainable growth,” he adds.

A sluggish construction pipeline will also push up prices, with the number of new homes being built languishing below pre-pandemic levels and a long way short of the Greater London Authority target of 52,000 per year. The report claims that work will start on just 16,000 new homes in London next year.

JLL forecast: house price change (% per annum)

2022

2023

2024

2025

2026

Greater London

6.0

5.5

3.5

4.0

4.5

Prime central London

7.5

5.0

2.5

3.0

3.0

UK-wide

4.5

4.5

3.0

3.5

4.5

Has a period of house price falls come to an end?

London house price movement has fluctuated over the summer, disrupted by the coronavirus crisis and the stamp duty holiday. After a sharp rise in August, the average cost of a home dropped 2.9 per cent in September according to Land Registry as the Chancellor’s tax break came to an end. The annual rate of increase in the 12 months to September was 2.8 per cent, the smallest rise for any region of the UK for the tenth consecutive month.

However JLL, among other property experts, is predicting the turn of the market in the capital. The average price of a London home will rise to £507,253 by the end of 2022, the report reveals, versus a national increase of 4.5 per cent next year to £269,945.

The rate of growth is not simply being driven by the number of sales but also by the type of homes being purchased. After saving during the lockdowns, those buyers who are financially secure are shifting to larger more expensive properties with outdoor space, which also contributes to the rise in the average house price, explains Jamie Durham, economist at the consultants PwC.

What about rents in London?

The dearth of new homes in the capital and the return of young tenants and overseas students will also drive up demand for rental homes and the cost of renting. The average rent across all of London next year will rise by four per cent to £1,583 monthly and six per cent in the expensive inner core of the capital, according to JLL. This compares to a rise of 2.5 per cent nationally taking UK rents to £997 per month.

A recent report from Hamptons reveals that rents are on the rise, on average, across Greater London. In October rents rose by 2.5 per cent.

Rental growth (% pa)

2022

2023

2024

2025

2026

Greater London

4.0

3.0

2.5

2.5

3.0

Prime central London

6.0

3.5

2.0

2.0

2.5

UK-wide

2.5

2.5

2.0

2.5

2.5

Can you trust house price forecasts?

The JLL forecast is one in a series of expert property predictions published every November. It closely follows one from fellow estate agent Savills which was published last week.

The Savills and JLL five-year forecast for the London market seem to vary wildly. Savills expects house prices in the mainstream London market to rise 5.6 per cent over the next five years compared to the JLL’s outlook of 24.5 per cent. This is because the Savills study strips out the luxury market, dubbed “prime London”. This is classified as the top five to 10 per cent of London homes by price. JLL however has factored in the top end of the market.

Both agents predict the return of the luxury London market, which makes up a significant proportion of housing in the exclusive inner enclaves of Knightsbridge, Kensington and Chelsea, Mayfair and Westminster, as well as the leafy villages of Hampstead, Wimbledon and Richmond.

Next year JLL forecasts house price rises of 7.5 per cent in prime central London, compared to Savills’ eight per cent. The price of a luxury home in London plummeted when the pandemic stuck as international travel was frozen. These price drops are now tempting wealthy overseas buyers back. “We are definitely seeing international interest return and expect demand to gather pace as travel restrictions ease,” says Whitten.

However, he caveats all current forecasting: if there is a material change to Covid-19 related restrictions, namely a winter lockdown in the UK, forecasts would change.

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