House prices across the UK will decline by 5 per cent next year with the notable exception of prime London properties, which will see prices rise by the same extent as demand remains strong, according to Knight Frank, the property firm.

After rising next year, prime central London prices will hold steady in 2013, then rise by 4 per cent in 2014, rising by a total of 24 per cent between now and the end of 2016, the firm said.

Geo-political unrest in parts of the world such as North Africa and the Middle East continues to make London an attractive safe-haven market, Knight Frank said, arguing that this segment will stay “de-coupled” from the rest of the UK property market.  

In real terms, adjusted for consumer price index inflation, house prices will have fallen 29 per cent from the peak of the market by 2015 and will not regain the levels seen in 2007 until 2028, Knight Frank added.

Prime country house prices will slip by 2.8 per cent next year before returning to growth in the mid-term following the establishment of more convincing UK economic growth from 2013 and beyond.

“After falling by 15 per cent 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. We believe that this correction is still to come, but that it has been pushed further and further out because of low base rates,” said Grainne Gilmore, head of UK residential research at Knight Frank.