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London

Housing rents in London will continue to rise sharply, supported by demand from younger people unable to get a foot on the housing ladder

Say Jones Lang LaSalle in 2012 Residential market forecast report


London, 17th November 2011 - International property consultants Jones Lang LaSalle predict that rents in the capital will rise at 7% in 2012 and 6% in 2013, with faster growth in the most desirable areas in their 2012 residential market forecasts published this week.

However, this represents a slowdown from 2011, when rental growth reached double figures in much of the capital.

Jon Neale, Residential Research Director at Jones Lang LaSalle, said: “The constraints in the mortgage market continue to force more Londoners into the rental sector.”

“While higher loan-to-value mortgages are increasingly available, they remain prohibitively expensive for those seeking to buy their first home.”

“The attractions of London’s employment market remain intense, and there is still strong population movement into the capital. Meanwhile, the stock of rented property has hardly increased over the past few years, with buy-to-let mortgages hard to come by and development volumes depressed.”

Changes to international regulation, combined with the Eurozone crisis, means that it will be far harder for young people to enter owner-occupation than in the past, forcing more households to rent.

Neale added: “The private rented sector in the capital has grown rapidly over the past few years, and there are now around 150,000 more households renting from private landlords than before the financial crisis.”

“By 2015/16, there could be more private tenants in London than people with mortgages.”

There are many reasons for this, but paramount are the on-going problems in the mortgage market. Increased regulation, combined with problems surrounding funding, suggest that mortgage volumes will remain much lower than has been typical historically.

Neale added: “The Eurozone crisis, combined with a stricter global regulatory environment, indicates that the mortgage market will not rapidly return to the conditions seen for much of the twenty years leading to the financial crisis.”

First-time buyers will continue to struggle unless they have access to a significant deposit. While higher loan-to-value mortgages may become more widely available, they are likely to remain far more expensive than other products.
 
The changes are most profound in Inner London, which is progressively becoming younger, more transient, more international, more single and more likely to rent. While incomes are likely to continue increasing as gentrification continues, many will be constrained by the lack of significant equity.

However, the capital will also defy the gloom surrounding the UK housing market, with prime areas and the best new central London developments set to see 4% house price growth during 2012 and 6% in 2013.

Greater London generally will see prices grow by 2% over the next year, in contrast to the 0% seen across the UK as a whole. The stronger economy in the capital, combined with on-going international demand, will keep prices robust.

Neil Chegwidden, Residential Research Director at Jones Lang LaSalle commented: “London, and particularly in more central areas, is increasingly seen by international investors as a safe haven in a turbulent world. Combined with a stronger economy than the wider UK, this will ensure that prices continue to rise in 2012.”

The gap between London and the remainder of the UK is likely to grow over the next few years, with price growth 4% and 7% forecast for 2013 and 2014 respectively, and higher rates expected for prime locations and the best new development schemes.

Meanwhile, Northern and Midland regions will have a much more difficult year with average prices dropping by 2%. Higher levels of unemployment, weaker job creation and the effect of public sector redundancies will weigh heavier on these regions, although there will be “bright spots” such as York and parts of Manchester and Cheshire.

The combination of the growth of the rental sector, a limited mortgage market and the concentration of owner-occupation among older, less mobile households suggests that transactions throughout the housing market will remain at a relatively low level for the foreseeable future, although London is likely to remain more robust.

Development volumes across the country will remain low as a result, but better conditions in London will result in a stronger bounceback for house building in the capital.