Are There Blue Skies Ahead?

Given some of the policies being promoted in the general election campaign and the pollsters’ predictions that the result was too close to call, it was no surprise that the prime housing markets stuttered in the run up to 7th May this year.

With the threat of a mansion tax having now lifted, signs indicate that those who adopted a wait and see approach prior to the election will return to the prime housing market with a new found confidence. This should mean restored transaction levels in London, which in turn are expected to allow the resumption of a flow of wealth into the commuter zone and a ripple effect to other markets. However, it would be foolish to believe that buyers will flock back with reckless abandon.

We should be mindful that prior to the period of electioneering, the prime London markets in particular, benefited from a prolonged bull run that left them looking relatively fully priced compared to other domestic and international markets.

Also, irrespective of the mansion tax proposals now consigned to the policy equivalent of Room 101, the tax burden on high value property rose substantially over the course of the coalition government.

This culminated in the 2014 Autumn Statement, when the stamp duty regime was overhauled and the annual charges for those holding property in unconventional structures was increased by 50%. As a result, the prime London market also started to look fully taxed.

As an example, a house in South West London worth £1.85m in 2007, would at that time have attracted a stamp duty liability of £74,000. By the end of 2014 that same house would have been worth £2.5m and, given the successive increase in rates, its purchase would now attract a stamp duty bill of £214,000.

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^{Source: Savills Research}

^{Note: These forecasts apply to average prices in the second hand market. New build values may not move at the same rate.}

Those expecting a dramatic bounce in values should also be aware that while the pre-election uncertainty has undoubtedly created a pool of pent up demand, it has also produced a reservoir of unsold stock, with more now likely to come to the market.

So, although these factors are likely to prevent values soaring, the much greater political certainty is likely to restore some of the fundamentals of demand – underpinned by a low interest rate environment and growing domestic and international wealth generation – resulting in a more buoyant market.

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