These initiatives have already had a positive impact on mortgages, reducing the cost of borrowing and increasing availability for the first time buyer according to Winkworth.
The cost of an average two-year fixed rate loan plunged from 4.65% at the time the Funding for Lending Scheme was launched in July 2012 to 3.63% in November, with the average loan to value rising from 80 to 83%. As mortgage costs fall for both the homeowner and the buy-to-let investor, we envisage that prices will continue to move up in London in 2014 and, for the first time since 2007, start to improve in the country markets.
Central London property has continued to prove highly attractive to international buyers with strong demand coming from Asia in particular, where a growing middle class is fuelling interest in overseas buying. Meanwhile, a recovery in the UK financial services industry is bolstering the sentiment of domestic buyers and adding to demand for prime properties.
We expect, however, that this interest will be tempered in 2014 by a recovery in sterling as the UK economy shows further modest improvement, a reduction in both global and Eurozone risk lessening the pull of the London market as a safe haven, and an increasing number of properties incurring stamp duty at the maximum rate of 7% as prices push through the £2m barrier. The net outcome of the above factors is that we would expect to see a further 5% rise in central London prices next year.
We anticipate a higher level of price appreciation in suburban London of some 10%, as an estimated £130bn of Help to Buy mortgages and an ongoing low interest rate environment stimulate buying against a background of limited supply. Cheaper mortgages for the professional classes, greater job security and improved employment prospects will underpin the family house market.
In our "Winkworth Lens" report of a year ago, we noted a developing trend suggesting that the traditional route of families moving out of London had changed in recent years, with an increasing number of families choosing to move within London rather than leave the capital. According to Winkworth agents at that time, of all families buying in London over the course of 2012, 71% moved either within the local area or to other parts of London.
A recovery in prices is now underway in the South East of England as government schemes which supported professional buying in the mid to lower end of the housing market are now feeding through to greater activity at the upper end. We believe that, in 2014, many that have held off buying in the country and kept their money in London will look to take advantage of the value gap that has opened up and make a lifestyle choice to move out.
This will be supported by improved job security and a return to a more flexible style of working than in recent years. Consequently, we expect to see greater demand and price growth of around 5% in the South East.
Finally, transactions should continue to rise towards their long term trend level of one million per annum. We expect to see an increase of some 15% in activity levels in 2014.
