The UK is currently in recession and independent forecasters are expecting little growth by the end of this year. The long-term recovery of the housing market will depend on a comprehensive economic recovery.
• Eurozone: A withdrawal from the eurozone by a high risk country could initially prove a driver of house price growth in prime London as money and assets are moved to places of safety. However, the crisis could have an impact on bank finances creating a second credit crunch. This would affect the general UK market and might impact on sentiment in the prime markets.
• Oil and Middle East: The turmoil in the Middle East and North Africa has contributed to the rise in oil prices and subsequent inflation. However, the safety and security of London as a city and finance centre has drawn increased investment. At almost £113 per barrel, the price of oil during August 2012 is 60% higher than the level during August 2007.
• Interest rates: Interest rates are expected to remain low according to independent forecasts. They are expected to rise next year as the economy gently grows although they are likely to remain at a low level.
• Job security: There are currently 2.5 million people unemployed across the UK and this figure is not expected to peak until 2013. The continuing uncertainty within the job market is acting as a further barrier to recovery.
The wider context
In contrast to the markets of London, the performance of prime regional property locations across the regions and nations has been patchy since the market downturn and there have been relatively low levels of wealth flowing out of London.
While prices are continuing to fall north of the border, the bottoming out of the London market began three years ago and prices are now 21% above their 2007 peak in central London. There are signs that price growth is starting to level off in the face of renewed economic uncertainty and the higher tax burden associated with prime property ownership. However, in the wider global context, London continues to be seen as a relatively safe place to store wealth, due to its stable socio-economic environment.
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