Estate agent Marsh & Parsons has forecast that ‘prime’ London house prices will rise by 5-7% in 2014, compared to 10.3% in the last 12 months, with the majority of growth expected to take place in the first half of the year.

Peter Rollings, CEO of Marsh & Parsons, said: “London’s housing market saw a substantial uplift in 2013, and we expect a similarly strong start in 2014 to drive an annual rise in prices – but these won’t be as spectacular as last year. With ongoing support from Government initiatives, the rate of growth will remain sustainable.

“Following improvements in unemployment levels, we’re likely to see modest increases in interest rates next year. But with a general election coming up in 2015, any changes are unlikely to create shockwaves through the housing market.”

A lack of supply being met with high demand will continue to drive price increases in the Prime London property market. At the end of 2013, there were 18 registered buyers per available property, compared to 13.5 at the end of 2012, and this will ratio will remain high in 2014.

Rollings said: “Many sellers will remain cautious of putting their property on the market as they are not confident that they will be able to find somewhere to move to, therefore supply is unlikely to improve considerably next year. As a result, property will continue to sell for close to or at the asking price and we may see our average success rate of 98% of the sale price currently being achieved in Prime London increase even further.”

Changes in policy announced in George Osborne’s Autumn Statement mean that foreign property owners who sell second homes in the UK will have to pay Capital Gains Tax from April 2015. But with overseas buyers and foreign nationalities making up just 28% of all Prime London purchases in Q3 2013, Rollings believes this change in policy is unlikely to have any dramatic effect on prices in 2014.

He said: “With the change only being introduced in April 2015, we may find a short-term rush for tax-free sales before the policy comes into effect, helping to boost supply and fluidity at the highest level. However, even with yet more tinkering from the Chancellor, London remains a more attractive and easier place to buy property than many other cities around the world, and providing that the politicians don’t ‘kill the golden goose’, demand for the best properties will remain fierce.”

Based on current trends, Marsh & Parsons expects rents in Prime London to hold steady in 2014, with rises of 2-4% in 2014, as opposed to the generally static rent levels recorded in 2013.

Rollings added: “The improved economic mood has eased anxiety among city firms and as a result, the corporate lettings sector will flourish next year. Based on current trends, we expect the greatest rental increases to be found in two-bedroom properties in central areas such as Kensington & Chelsea, which are popular locations for visitors from abroad.

“As competition heats up, void periods will continue to fall, and 2014 tenants will face intense competition for the best properties.”