International demand for London property is creating an expanding North-South divide for house prices, the Centre for Economics and Business Research has warned.
So far this year, London has seen house price gains of 2.4%, compared with a fall in North East house prices of 2.7%.
The CEBR predicts a further, though less rapid, widening for 2013 with London prices set to increase by 2.3% while North East prices are likely to fall by 1.3%.
Increasing European financial turmoil in the last quarter has further boosted international demand in UK property, with wealthy investors seeking safe havens for their assets.
The CEBR expects this demand, centred on prime markets in London and the South East, to support marginal price growth over the year.
Douglas McWilliams, chief executive of the CEBR, says: “Demand in the London market remains resilient, with the ongoing eurozone drama piquing international interest in the capital.
“Furthermore, we can expect an abundance of affluent French citizens to be shopping for homes in London if President Francois Hollande’s proposed 75% top rate of income tax is enacted.”
But Ed Stansfield, economist at Capital Economics, says it will not be long before the eurozone crisis hits London prices as well.
He says: “There seems little prospect of a return to normal levels of activity in the housing market. Indeed, the big risk facing the market is that an escalation of the eurozone crisis acts as a catalyst for the weakness of house prices in the North and the Midlands to spread to southern regions.”