Prime London market peaks

Marc Da Silva discusses the complex prime central London housing market with the UK’s leading expert in residential property research.

London properties imageWhat impact has the stamp duty change introduced in December 2014 had on property transactions and prices in prime central London?

Savills indices show that property prices in prime central London have fallen by six per cent since the 2014 peak. The biggest falls were seen in the period immediately after the introduction of higher rates of stamp duty in the 2014 Autumn Statement, but the market has still struggled to gain any traction even since the General Election in May 2015.

Lucian Cook, Savills imageIn the past year, prime central London property values have slipped by 3.4 per cent as the market continues to adjust to higher levels of stamp duty. Average residential property values across all prime London closed 2015 a marginal 0.5 per cent up year on year.

Data from LonRes indicates that sales of central London property worth over £1 million in the 11 months to November 2015 were 25 per cent below the levels seen in the same period in 2014.

Where stock is appropriately priced it continues to sell, though the pool of motivated buyers has undoubtedly shrunk.

What other factor have contributed to the market slowdown in the heart of the Capital over the past 12 months?

The housing market in prime central London continues to adjust to a less favourable tax environment generally. After a prolonged period of strong price growth and even prior to the stamp duty changes, prime central London residential property was looking fairly fully priced. It is worth remembering that in the period from June 2005 to September 2014 the average price of a home in prime central London had risen by 137 per cent so we had anticipated a lull in price growth in 2015/16.

Are international homebuyers still highly active in London?

There are still international buyers out there and they account for a similar proportion of the market. However, overall transactions are down and these buyers are much more price sensitive.

What impact will the new three per cent buy-to-let surcharge to be introduced in April have on the sales and rental market in prime central London?

Given the existing level of investment activity and second homeownership, it is likely that the market will remain price sensitive. We are not expecting any significant price growth in the next two years. It may limit the amount of new investment stock brought to the rental market which would underpin rental values.

Sales of central London property worth over £1m in the 11 months to November 2015 were 25% below the levels in the same period in 2014.

There was however emerging evidence of greater activity in December 2015 among investors and second homeowners keen to avoid the three per cent surcharge, so we may see increased activity from these buyers in the first three months of 2016.

Home prices have, in the past, demonstrated a distinct spatial pattern over time, rising initially in a cyclical upswing in prime central London, before rippling out across wider London and eventually the rest of the country. Is history set to repeat itself?

Since 2009 we have not seen a huge ripple effect beyond London. House price growth in central London has broadly been matched by that along the two wealth corridors running north and south west.

Prime urban areas such as Oxford, Cambridge, Winchester and Bath have seen some money flow out of the prime domestic markets of London but there is still a big value gap with the commuter zone beyond the M25. That provides a platform for price growth when conditions are right. However, it probably needs London to be a bit more active than we have seen in the  past 12 months.

That said, prime urban town and city locations saw residential property values rise an average 4.4 per cent according to our indices, well ahead of the all prime London average of 0.5 per cent. This leaves them 12.6 per cent up on five years ago, compared to 26.1 per cent for prime central London.

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