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As the mayhem in the eurozone shows no sign of abating, prime central London property prices continue to rise. Many overseas purchasers are paying prices well in excess of those achieved at the so called peak of the market in Autumn 2007.

Lease extension premiums are therefore rising on a daily basis as leases continue to shorten. Only the service of a s42 notice arrests this decline and stops the likely premium from rising further.

PRIME central London property values appear to have held steady over the last 12 months and latest authoritative research by Savills suggests that values in this sector are anticipated to rise by 10% in 2012. The obvious conclusion to be drawn from this research is that lease extensions in prime central London are likely to be much cheaper today than in a years time when the lease is a year shorter and freehold values are starting to rise.

FREEHOLD values in prime central London remained reasonably steady overall for the third quarter in a row. Lease extension premiums are therefore becoming more expensive because the unexpired term is inevitably shortening as time passes.

FREEHOLD values in prime central London levelled out according to the latest authoritative indices. Despite conflicting opinions and uncertainty regarding the prospects for the UK economy as a whole, it seems the current sentiment is that the prime central London residential property market appears to be insulated against the effects of any potential downward slide. Largely because of the lack of good quality stock, low interest rates and the weakness of sterling, prices are being paid that sometimes exceed those achieved in the peak of the 2007 market.

With regard to the deferment rate, a major freeholder, the Wellcome Trust, is believed to be pressing for a reduction in the deferment rate in a case due to be heard at the LVT regarding a collective enfranchisement in Onslow Gardens. If the LVT rules in the freeholders favour and decides a reduction in the deferment rate is appropriate, it may mean premiums will be more expensive in the future. Obviously there is a certain amount of water that needs to go under the bridge before any conclusions can be drawn, but it is best to be aware of possible developments in this area.

FREEHOLD values in prime central London rose again in 2010 for the fourth quarter in a row and, according to the latest authoritative indices, are now just 10% below their September 2007 peak. Whether or not values continue to rise in 2010 is difficult to call because much of the "recovery" has been due to restricted supply of good quality stock and the weakness of sterling. The supply of rental properties in prime central London has fallen contemporaneously resulting in potentially higher yields which should further strengthen appeal to the overseas investor. Therefore even in this uncertain economic and political climate it is hard to see freeholds in prime central London market falling in value over the next 12 months.

THE most recent indices of prime central London property values have shown a rise of just under 13% over the last three quarters. This "recovery" appears to be a result of both the low supply of good quality stock and the return of the overseas investor emboldened by the weakness of sterling. Whatever the cause, the effect is simple, the recent savings in premiums due to the large fall in freehold values between September 2007 and March 2009 are diminishing.

It is worth reiterating the simple fact that, all things being equal, the shorter the lease the more expensive the premium. Lessees are deciding to serve their s42 notices now to prevent their leases declining further.

WE have been inundated with instructions from lessees wishing to take advantage of the huge fall in freehold values.

The prevailing sentiment that the bottom is not far away and central London property is beginning to look affordable again is coinciding with the widespread realisation that a long lease is essential in order to maximise marketability.