Why the sudden drop?

The year of 2014 has been an incredible year for the London property market. With January performing slowly like it usually does, the month of February saw the market kick into action and by March, the market was increasing at a pace not seen since 2006/2007. The frenzy continued until the end of August.

By September, the market had slowed dramatically as buyers were concerned they would be buying at the top of the market.

Even with the late price drop, price increases in some areas hit 20% with Hammersmith, Hackney and Brixton achieving rises nearing 30% for the year-end September 2014 - so it is no surprise some of these areas have fallen by up to 7%.  

The economic climate

Even the most bullish analysts are finding it hard to predict growth in the coming year, but then again this would not be the first time we expected a drop only to see another rise.

The market is nervous that a new government would influence growth of the housing market. Labour have hinted on imposing restrictions on the number of foreign buyers and with sterling at its strongest since 2008, London is not as appealing as it was in 2013.

What do the experts say?

• Market analysts at Savills predict a drop of -0.5% for the Prime central (Kensington, Belgravia, Mayfair) and an increase of 1.0% for the rest of the capital.
• Knight Frank forecast the market to flat line for the coming year.
• The Centre for Economics and Business Research predict a drop of 0.8%.
• Both Savills and Knight Frank predict stronger growth for the years 2016 and 2017.

Our opinion

We predict the market will be slower in 2015 than 2014 but the level of growth or decline will differ from area to area. Places like Hackney and Hammersmith that have seen exponential growth in the last eighteen months will see more price drops but prime central areas we predict will flat line and possibly a small price drop.

In a flat lining or dropping market, the opportunities for buyers become greater. Considering that most analysts predict the market to start rising again in 2016, the coming year could pose a good buying opportunity - especially for rental investors who are currently seeing yields rising for the first time in several years, as demand for rental property increases.

For homebuyers, certain areas could become very appealing, especially for those looking to move more central or up the market.

In some ways, the strengthening of the pound and the fear of an interest rates rise is potentially a good thing to bring some stability to the market. Ultimately, the market cannot continue to rise at 10% every year without a big slump at some point causes repercussions to the economy and people’s confidence.