Strong interest from foreign buyers has helped support demand for homes in London, according to a property expert.
Prices dipped by 0.6 per cent in August, with the average cost of a home dropping to £165,914, research by mortgage lender Nationwide found. This figure is 0.4 per cent lower than a year ago, although prices did rise by 0.3 per cent in July.
“The rebound in the capital’s economy has been surprisingly strong which, together with still healthy interest from foreign buyers, has supported demand”
-Robert Gardner, chief economist, Nationwide
However, Nationwide chief economist Robert Gardner does not believe this changes the “relative stability that has characterised the market over the past 12 months” across the country, while London homeowners can be cheered by continued demand.
Gardner said: “The rebound in the capital’s economy has been surprisingly strong which, together with still healthy interest from foreign buyers, has supported demand.
“With the supply-side of the property market more constrained in London than the rest of the country (i.e. less scope to build), stronger demand for housing feeds through more quickly to higher house prices,” he said.
House prices in the UK actually increased by 0.1 per cent in the June to August period, after a rise of 0.3 per cent in March to May, according to the figures.
Gardner believes the shifting nature of the economy will have a big influence on the fortunes of the housing market over the next year.
“We expect the UK economy to gradually gain momentum over the next 12 months and beyond, but the pace of the upturn is unlikely to be uniform. This is important for the housing market, as regional economic performance will remain a key determinant of regional property market performance,” he said.
“It’s hard to predict what will happen, but the regions most exposed to public sector cuts are likely to lag, at least in the near term. Over the longer-term, the UK economy is expected to gradually rebalance, becoming less reliant on services and more reliant on manufacturing and exports to drive growth. If this is achieved, this could also have an important impact on the regional pattern of house price movements.”
Gardner said regions such as the East Midlands, the North and Wales have been hardest hit by the recession because they are more reliant on manufacturing.
However, he added: “The pattern could reverse, or at least moderate, if manufacturing plays a more important role in driving growth in the years ahead, as policymakers and many analysts expect. This might mean that London will not outperform, or at least not by as much, over the longer term.”