“After falling by 15% in 2008, it was widely forecast that the market would dip again the following year, but this failed to happen – largely because of the drop in interest rates,” said Grainne Gilmore, head of UK residential research at Knight Frank.
“We believe that this correction is still to come, but that it has been pushed further and further out because of low base rates. But next year, amid a ‘perfect storm’ of a struggling economy, public-sector cuts and rising unemployment, prices will fall.
“As interest rates start to rise, prices will struggle to maintain any notable growth until 2015.”
Liam Bailey, Knight Frank’s head of research, said, ”Prices in prime central London are currently at an all-time high, despite which we believe there is scope for further price gains over the next 12 months, averaging 5% across 2012.
“The reasons which have underpinned recent growth – a weak pound, renewed wealth-creation in emerging markets, the search for safe-haven assets and flight capital – all seem set to continue, at least in the short term, reinforcing our positive view for next year.”