House prices are forecast to rise by an average of 15.3% over the next five years, research by Savills has found.
Prime Central London, where median values stand at just over £2.75m, is predicted to be one of the strongest performing markets which reverses trends seen over the past five years.
Lucian Cook, head of residential research, Savills, said: “We anticipate a continuation of trends seen historically, where London and the South East underperform markets in the Midlands and North.
“This stage of the cycle appears to have begun in 2016, coinciding with the referendum, when London hit up against the limits of affordability.
“Markets further from the capital, such as Leeds, Liverpool, and Sheffield, were much slower to recover post financial crisis and have much greater capacity for house price growth relative to incomes, even as interest rates rise.”
Rents are set to rise ahead of wage inflation in London, growing by a total of 18.8% over the next five years.
At a regional level, there will be less upwards pressure on rents, with growth across the rest of the UK expected to average at 13.1%.
Franz Doerr, founder and chief executive of flatfair, added: “With London rents set to rise faster than wages over the next five years, the average London tenant is going to be more and more hard-pressed to pull together a lump sum for a tenancy deposit.
“Capped at five weeks’ worth of rent, most deposits still amount to more than a month’s income for London’s renters and there is a risk of more people acquiring debt to pay this down.
“Deposit alternatives like flatfair will become the norm as it gives tenants the option of renting without having to save or borrow for large upfront costs, while also providing landlords with protection worth up to 12 weeks’ worth of rent.”
Savills forecasts that Prime Central London values will rise 3% in 2020 which represents the first annual price growth since 2014, and increase 20.5% over the next five years.
Cook added: “Prime Central London has become increasingly dislocated from the Greater London mainstream over the past five years; we expect that to go into reverse.
“Historically, a recovery in the prime markets has been sparked in Prime Central London, when the city’s most expensive properties start to look good value on a world stage.
“Values have been bottoming out over the past year, resulting in a build-up of new buyer registrations over recent months.
“Both signal that the market is set for a bounce, but this is being held up by uncertainty.”