UK House Prices Predicted to Fall Next Year
House prices across the UK will fall by 5 percent next year, according to estate agents Knight Frank, although prime central London property will remain immune to the downturn as it is buoyed by international buyers.
Elsewhere in the UK, house prices will show little convincing growth until 2014 as unemployment rises and banks continue their reluctance to lend money for mortgages.
The UK economy is laboring under the threat of a second recession as rising inflation, low wage growth and unemployment
"Next year, amid a 'perfect storm' of a struggling economy, public sector cuts and rising unemployment, prices will fall," Grainne Gilmore, head of UK residential research at Knight Frank, said in a statement. "As interest rates start to rise, prices will struggle to maintain any notable growth until 2015."
First-time buyers, who have to find substantially bigger deposits before getting a mortgage than in the pre-credit crisis years, are expected to find it particularly difficult to get on the property market.
While Knight Frank predicts that house prices will fall across the UK, the top end of the market in London will continue to perform well as the weak pound attracts foreign buyers.
Prices in London for properties priced over 2 million pounds ($3.2 million) have hit record highs recently, and Knight Frank believes they will grown by another 5 percent next year amid political uncertainty elsewhere around the world.
The estate agents said that they had already seen "increased activity" from Russian buyers ahead of next year's elections, and added that the ramifications of the Arab Spring may also spur more Arab buyers.
"The reasons which have underpinned recent growth, a weak pound, renewed wealth creation in emerging markets, the search for safe-haven assets and flight capital—all seem set to continue at least in the short term reinforcing our positive view for next year,” Liam Bailey, head of research at Knight Frank, said in a statement.
Within the rest of the UK, the north of England and Scotland are expected to be particularly badly hit as they are more dependent on public sector jobs, many of which will be cut as the UK government tries to tackle its deficit.