London’s economy is expected to pick up strongly towards the end of the decade, contributing to the average cost of a home in the capital rising to at least £500,000, according to a new study.

The Centre for Economics and Business Research (CEBR) predicts that London house prices will rise less slowly in 2013 than they did last year, but says they will really start to take off again as we move towards 2020.

By then, it estimates that buyers will have to fork out a minimum of half a million pounds on a new home - an increase of more than 30% on today's £383,000 average.

"House price rises will be driven by London's comparatively rosy economic growth prospects, buoyed by IT, business and professional services," said Daniel Solomon, CEBR economist.

"Nevertheless, house price growth in London will remain notably slower than in the boom years before the financial crisis."
He added that high rates of immigration will also boost the capital's economy, creating demand for housing and also injecting skills, languages and international commercial links to the city.

Miles Meacock, Partner at Strutt & Parker's Notting Hill office,commented: "I don't see house prices over 2013 in London growing with the same vigour we've witnessed in recent years. However,modest price rises tend to suggest a healthier marketplace overall because buyers see a more level playing field through less volatility. The volume of trades should therefore grow from last year's figures which saw our sales transaction levels double from 2011."

Meanwhile, outside London, the North-South divide will become even greater.

The South-East and East of England will continue to prosper as house prices are expected to rise by 24.8% and 25.7% between 2013 and 2018.

On the other hand, Northern Ireland and the North-East are forecast to grow by just 6% and 2.3% respectively over the same period.

New research from Halifax recently estimated the value of the UK's private housing stock to be at £4.2 trillion - up £1.64 trillion, or 62%, compared to a decade ago.

The rise is the equivalent to £71,200 per property in the owner-occupied and private rented sectors, with all regions across the nation displaying a strong rise in housing stock values.

Scotland witnessed the biggest increase in the value of the private housing stock, rising 115% from £134 billion in 2002 to£288 billion in 2012.

London had the next biggest increase, up 83%, while the North-East was third, up 76%. Meanwhile, the smallest increases were found in the West Midlands, at 45%, and the South-East, at 50%.

Ivor Campbell-Davys, Partner and Head of Strutt & Parker's Fulham Office, comments: "The strongest area within our market has been the flat market, represented by prices from £300k to £1m,neatly enveloping the £500,000 mark. For £500,000, the likely candidates are a really good one bedroom flat or a pinched two bedroom flat. The buyers tend to be parents buying for their children (Bank of Mum and Dad) or investors. Those people with cash in the bank, earning them little interest. Of course, there are buyers who have scraped their necessary 25%deposit together over the years but at a bidding contest or in sealed bids these buyers are too often left behind."

Ivor continues: "It seems when one is terrified of the stock market and world economy, London bricks and mortar take over as the solid investment, meaning those of us chasing that first rung on the ladder are finding it increasing difficult to get on it.Interestingly the market is becoming increasingly segmented by the stamp duty thresholds, of which, of course, £500,000 is one.

"With a growing population, a more international South-East region and little housing growth one suspects that the news of a£500,000 average home price is hardly surprising to the majority of the population, a little like a new increase in fuel, both are of course, finite resources for the moment and will take a wholly new attitude or invention to change the general trend."