Shapes of things to come

Whether it’s a ‘V’ or a ‘W’, the recovery in the UK capital will be a red letter day for those who move fast, writes Oliver Hooper MRICS

The prime residential property market in London grew last year against rising unemployment and against the predictions of many economists, so forecasts for 2010 are still hard to balance.

The recovery since 2008 has been V-shaped and what most are wondering is whether this will in turn lead to a ‘W’ or a ‘WWW’ price fluctuation over the next few years.

The V-shaped recovery in London was attributed to the weakness of the pound and foreign buyers securing assets at a discounted rate. Meanwhile, other buyers who had cash in the bank felt that they could get a better return in residential property than through low interest rates.

These rates lead to fewer distressed sales than expected, and so restricted supply against cash-rich demand pushed prices up.

For these two categories of buyers in prime London the consequences of overpaying were not too problematic as the market provided the opportunity to secure good assets for the long term.

Unbelievably, therefore, some agents recorded record prices. More experienced buyers were securing good deals on good properties, so a slight inefficiency in market prices was occurring, but with the overall result of average prices going up.

But as the year progresses, the lack of supply remains. Unless new stock comes online, this increased demand will put further pressure on prices to rise.

At the same time, the uncertainties that will result from the upcoming general election may make buyers hold out until possible changes in public sector unemployment, higher taxes, and continued mortgage difficulties have filtered into the market. Foreign buyers, too, may wait to see what happens with the election.

These factors aside, the most important variable this year is going to be the date at which the historically low interest rates are changed, as this will have the most pronounced effect on tracker mortgage rates.

If they rise, they may lead to more supply coming on to the market, while cash rich buyers consider other assets or savings rates. Economists differ on when this is likely to happen, but most seem to lead towards the end of this year, or possibly 2011.

So, this year could provide opportunities for buyers and sellers alike, and most believe we will fall into a W-shaped recovery, but with the second trough less deep than the first.

Those buying should be looking for the long term, and those selling could capitalise on the lack of supply, but both should be prepared to move quickly in what could prove to be a year of variable pricing.

Oliver Hooper MRICS is director at Huntly Hooper in London