Property prices predicted to rise in UK as vendors test water with higher prices

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UK prices predicted to increase

Desperate buyers are paying above the odds for property in some parts of the UK with locations in London seeing capital values rising 10% above the peak of 2007, a new report shows.

Homeowners are testing the London market by listing properties 20 to 25% above average market values, according to the Residential Property Forecast Q2 published from property consultants and chartered surveyors Cluttons.

It has now revised its forecast for national house price growth upwards to 3.5% in 2011, with 4% growth in 2012. London growth is also revised upwards to 8.7%, slowing to 6.7% in 2012.

Instability in the financial markets and unrest in London present an unhelpful distraction to politicians and business during this period of economic uncertainty, says Cluttons.

Desperate buyers, while not willing to pay the full prices, are agreeing to rates above market values in anticipation of further growth in the face of prolonged supply drought. Some areas of London are already seeing capital values rising to 10% above the 2007 peak, the report points out.

The report shows that the rental market is also being tested. New tenants are paying 20 to 25% higher rentals than previous occupants. Annual rental growth is at record high of 20.4% in the second quarter of the year with London rental value growth forecast at 11.1% easing to 2% in 2012.

Rental property for would be first time buyers continues to push up demand. In addition, severe supply shortage has been exacerbated by stable but buoyant demand. In fact, some parts of London are reporting a growing number of renters from North Africa, fleeing the unrest as a result of the Arab Spring.

Market resilience has also prompted existing tenants to seek renewals, rather than relocate. Average rental uplifts at renewal range from an extra £10 per week to an additional 10% per annum.

Landlords are keen to maximize their returns as they are conscious of the fact many tenants, bound by financial constraints, have no option but to continue to live in rented accommodation either having been priced out of the sales market or unable to locate a suitable property due to supply drought.

‘It is good to be able to report that national house prices will rise to better than previously expected levels during 2011. A sharp decline in new instructions contributes towards a severe supply drought which is forcing values upward,’ said Andrew Forrester, head of Clutton’s residential consultancy division.

‘It is clear there will be no summer slow down this year with one of the most active rental markets the UK has ever seen. Larger investment landlords, particularly in London, will benefit from increases in demand, restrictions in supply and the subsequent increases in rents,’ he explained.

’Record annual growth of over 20% is calling into question tenants’ abilities to move to different rented accommodation, further restricting supply. And with job insecurities and depleted household incomes still a major factor, financial pressure for the 3.3 million households in the private rented sector will persist,’ he continued.

‘Although currently very buoyant, Cluttons expects rental growth to slow down from 2012 in line with historic growth trends,’ he added.

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