Although in the first half of 2009, prices stabilised in Docklands and increased in Midtown and the City, the future health of the market remains uncertain. Interest rates look set to remain very low for the rest of 2009 before rising in 2010, but banks are likely to be very cautious about re-entering the mass mortgage market. By no means do we automatically expect the modest price rises of the last four months to continue, but we now see a stabilisation in the market at new improved price levels.

Across central London (including Midtown, City and Docklands), the fillip that the market received from March 2009 was noted by lenders who now have first-hand evidence of price stability or increases. This was contrary to their price expectations for the period, based on forecasts made at the end of 2008 for continued falls. Even the national indices of Nationwide (in April and May 2009) and Halifax (in May 2009) recorded house price growth, while the Council of Mortgage Lenders (CML) reported a 16% increase in new mortgage loans in April 2009. The CML also cautioned, however, that first-time buyers are being asked for 25% deposits and that repayment to income ratios continue to be squeezed. Overall, we do expect to see banks modestly increasing their exposure to the Midtown, City and Docklands market in the second half of 2009, albeit at relatively conservative loan to value ratios.

Confidence has also been increased by the robust performance of the stock market over the four months from the beginning of March, with the FTSE 100 Index rising by almost 30% to just under 4,500 points at the end of June 2009. If the banks do make new mortgage products available in the autumn, then there is the potential for prices to continue to be bolstered by the shift of some renters to buyers. In the second half of 2009 the impact of the above factors on pricing will be dependent on the amount of stock coming on to the market.

If the price rises we have already experienced in the first half of 2009 were borne out of a shortage of stock, then the stimulation to prices might be looked upon as artificial. On balance we do not expect to see a significant alteration in the level of stock on the market in the second half of 2009. As a result, we consider that prices will be maintained at the levels achieved in the first half of 2009. By early 2010 however, when owners recognise the improvement in the sales market, we expect to see an increase in the level of stock for sale. Looking further ahead, residential development starts across London have been severely curtailed since the beginning of 2008 due to market conditions and lack of development finance. As a result, the number of units under construction across London has fallen sharply.

Between 2010 and 2012 there will be very little new supply in Midtown, City and Docklands. While in Docklands, this will provide a window for the “mopping up” of units in a currently over-supplied market, Midtown and City will depend increasingly on turnover in the second-hand market. As a result there is the potential for a more systematic increase in prices in 2010, especially if pent-up demand from renters spills over into the sales market as mortgage products become more widely available.

Date : 2009-06-30 08:26:52
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