London house prices set for a 5% rise in 2016, states report

Although there has been a slowing down in the rise of property prices in London, following a period of amazing growth rate, it is still predicted that a 5% increase will occur in 2016, double the figure previously estimated.

This news comes from the Royal Institution of Chartered Surveyors (RICS), whose report indicates that a general lack of supply of available housing is keeping the upward trend going. According to RICS, the number of new buyers did increase at the end of last year, with 12% more potential first time owners seeking property. However there was also a 10% decrease in construction reported by surveyors.  House price inflation has accelerated each of the last seven months and looks to continue. A recent survey has suggested that most people feel prices will continue to rise and thus those with capital are still viewing property as an important financial asset

Chief economist Simon Rubinsohn has indicated that despite a sudden interest by the government in housing, the gap between availability, prices and wages is too wide to allow for a major increase in potential owners entering the property ladder at the lower end of the scale. This has led to a high demand for rental property from prospective tenants and thus a continued increase in rental prices from Landlords.

The Government has increased its Help To Buy equity loan scheme from 20% to 40% in London, allowing some lower income wage earners a better chance to buy, although availability of suitable property continues to be the main problem.

There is also some concern amongst potential mortgage seekers, especially now it is expected we will soon see the end of record setting low mortgage rates. This could be why at the moment mortgage applications, are at their highest point for the past one and a half years.

The ideal would be a closing of the percentage gap between household incomes and house prices. There are also calls for a closer look at the situation regarding buy-to-let, Institutional investment in property and also social rent property, with the Government not just concentrating on promoting sole home ownership as the long-term answer.

However economist Simon Rubinsohn, does see some light ahead, stating:

“Looking further out, there is some justification for taking a more optimistic view of new-build with significant incentives being put in place to deliver starter homes.”

This will need to be implemented with some urgency, as the population of London (including Greater London) has risen by almost 20%  in the last 25 years, much faster than the rate of building growth. It is predicted that the population of the capital will rise to 9 million by 2020. Although many are leaving to find cheaper properties in other parts of the country, there will always be a demand from those who need to be close to London for work or private reasons.