London's property market will not shake off its slump until 2021, when it will return to being the fastest growing part of the UK, economists have predicted.
Average prices in the capital have fallen for the first time since the financial crisis this year, amid fears that the housing market could stagnate when the UK leaves the European Union in 2019.
House price growth has slowed across the board since the Brexit vote last June, but forecasts by KPMG Economics suggest momentum in the market will pick up again around the time the country leaves the EU.
The prospects of continued uncertainty associated with the Brexit process, coupled with rising interest rates on the horizon, could trigger further adjustments in house prices and moderate growth in most regional markets over the short term, KPMG said.
The after-effects of changes to stamp duty are also likely to stall growth in the market.
House prices have been dampened by changes made to stamp duty in spring 2016, as they have had a significant impact on the buy-to-let market from the additional increase in duty.
However, KPMG's projections suggest property prices will start to pick up by 2019, and London will be the driving force behind growth in the market by 2021.
The capital has unique characteristics that make it more resilient to price fluctuations than other regions in the UK, according to KPMG chief economist Yael Selfin.
"London's property market isn't just made up of people's homes. Foreign investors plough money into property in the capital as it is seen as a safe haven asset, and they will continue to do so after Brexit, especially if sterling remains weak.
"If the UK's exit from the EU is done in a positive way, we're likely to see demand for property in the capital rise as it will remain one of the most vibrant and exciting cities in Europe."
Outside London, developments such as Crossrail and Thameslink are likely to continue boosting sales in areas such as Reading and Brentwood, while improvements to regions’ infrastructure should have positive impacts in other areas, with HS2 supporting sales in Birmingham, while cities in the north of England, such as Leeds, Sheffield and Manchester should benefit from Northern Powerhouse-related initiatives.
KPMG said its projections assumed that the Bank of England would increase interest rates next year, which will feed through into mortgage rates, affecting the affordability of borrowing and slowing down the rate of house price growth.
Other factors affecting the projections include trends in regional employment and population, which will affect the degree of housing shortages experienced across regions.
Ms Selfin added: "With so much going on in the UK at the moment, some fear that the housing market will be the first to snap if the mood changes around the Brexit process or when interest rates start to rise.
“Our analysis however shows that with the exception of a few areas in the south such as London, house prices are not particularly high compared to long-term regional valuations. Our projections see a more orderly transition over the next five years, with house price growth moderating further next year before gradually picking up momentum again from 2019."
This article was written by Sophie Christie from The Telegraph and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to firstname.lastname@example.org.
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