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Prime London Residential Markets

Prime London Residential Markets
Prime London Residential Markets

13 October 2016, words by Lucian Cook

Further price adjustments expected in the prime London markets

Uncertainty surrounding the UK’s vote to leave the EU has compounded the extent to which successive increases in stamp duty have impacted the value of prime London’s housing market and will delay the return of price growth to the market.

We are therefore anticipating further adjustments in value for property in prime London over the remainder of 2016. Following this we expect two further years of uncertainty, whilst exit negotiations take place and the extent of the impact on London’s economy becomes more clear. This will limit any significant price growth over this period.

 

Subsequently, we expect a return to long term average rates of price growth as uncertainty subsides. Though we do not expect a dramatic bounce in values as has occurred historically, we expect the fundamentals behind the prime London markets will underpin demand over the longer term.

FIGURE 1

Price movements in the prime London markets to Q3 2016

 
Figure 1

Source: Savills Research

Prime Central London

In the highest value prime central London markets, average prices fell by -2.8% in the third quarter of 2016 and are now -10.6% below where they were in September 2014, prior to these stamp duty changes. For properties worth over £10m, where buyers have the highest levels of stamp duty to face, prices have adjusted even more considerably by -13.5% since their previous peak in 2014.

Transaction levels in these markets have also been impacted, particularly for property worth over £1m. The first nine months of this year saw 36% fewer £1m+ sales, when compared to the same period in 2014 and 23% less than the nine months to September 2015, according to LonRes market data.

On the flip side, since the referendum result in June, the value of the pound has been falling and does present an opportunity to overseas buyers who are particularly prevalent in the prime central London markets. Buyers are also being attracted to stand out properties and those which are considered to be best in class.

Outer Prime London

Beyond central London, markets have remained more robust. Prices in outer prime London have fallen by a more marginal -1.8% over the past three months, as these less expensive, more domestic housing markets have held up more strongly against increased transactional costs.

Within these markets, lower value properties have performed better, with those worth less than £750k just maintaining positive annual growth of 0.2% to the end of September and those worth between £750k and £1m falling only marginally over the year.

Although access to mortgages is being limited by increases in regulation, a further 0.25% cut in interest rates will benefit domestic buyers in these markets who could take advantage of securing a fixed rate mortgage.

FIGURE 2

Prime London 5-year capital values forecast

 
Figure 2

*NB: these forecasts apply to average prices in the second hand market. New build values may not move at the same rate

Source: Savills Research

 
 

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Key contacts

Lucian Cook

Lucian Cook

Director
Residential Research

Savills Margaret Street

+44 (0) 20 7016 3837

 

Katy Warrick

Katy Warrick

Director
Residential Research

Savills Margaret Street

+44 (0) 207 016 3884

 

Frances Clacy

Frances Clacy

Associate
Residential Research

Savills Margaret Street

+44 (0) 20 7409 5905