London prime property prices still falling and expected to be flat in 2016
Prime property prices in London fell by an average of 0.8% in the final quarter of 2015 and are expected to remain flat in 2016 and into 2017, the latest residential index shows.
The latest fall in the prime London homes sector leaves prices a marginal 0.5% above the levels seen at the beginning of the year, while prime regional town and city markets averaged 4.4% annual growth, according to the research by international property adviser Savills.
The marginally positive average annual house price growth across all prime London is attributable to the performance of property below £2 million, which recorded growth of 2.2% over the course of the year, according to the report.
However, over the course of 2015 prices fell in all of the submarkets above this price level in London. Prime central London has seen prices fall year on year by 3.4% and 1.5% quarter on quarter and are 6% below the peak of 2014. Overall in prime London prices are up 0.5% year on year, down 0.8% quarter on quarter and down just 0.9% since the peak.
Prices have been affected by the stamp duty changes a year ago. In the under £2 million sector they are up 2.2% year on year and 1.7% above the peak but down 0.4% quarter on quarter while all other sectors have seen prices fall.
In the £2 million to £3 million market prices are down 1.4% quarter on quarter, down 0.2% year on year and down 2.7% since the 2014 peak. In the £3 million to £5 million sector they are down 1.2% quarter on quarter, down 1.3% year on year and down 3.8% from peak.
The higher end of the market is also affected with price growth down all round. In the £5 million to £10 million market prices are down 1.5% quarter on quarter, down 3.3% year on year and down 5.9% from peak. In the £10 million plus market prices are down 1.3% quarter on quarter, down 3.7% year on year and down 7.5% since peak.
‘This reflects a continued adjustment to a less hospitable tax regime and successive increases in stamp duty rates in particular. This is particularly impacting the higher value markets of prime central London,’ said Lucian Cook, the firm’s head of UK residential research.
‘Since the credit crunch, is has been common practice to index price growth in prime London to the previous peak of 2007/2008. It is now clear that 2014 is the new peak reference point for a market that has continued to adjust to higher taxation, introduced at a time when the market was already looking fully priced,’ he added.
He also pointed out that while the prime central London market remains price sensitive, data from LonRes indicates that transaction levels in the first 11 months of the year were 75% of the levels seen in the year previous for stock sold for over £1million.
‘In addition, there is emerging evidence of greater activity in December among investors and second home owners keen to avoid the 3% stamp duty surcharge that applies form 01 April next year. This suggests that where stock is priced appropriately there is still a market, particularly for best in class,’ Cook explained.
Beyond London prime housing markets have seen average annual price growth, with values rising by an average of 2.4%. The Savills report says that this has been underpinned by an ongoing preference for good quality family housing in prime urban locations such as Beaconsfield, Cambridge, Bristol’s Clifton, York and Chester.
In such prime urban locations prices have risen by an average of 4.4% over the course of the year, while the typical manor house or rectory has seen little or no price movement over 2015.
A breakdown of the figures shows that in the prime regional urban sector prices have increased by 12.6% over the last five years, are up 4.4% year on year and 0.8% quarter on quarter. In the prime regional village market they are up 0.2% quarter on quarter, 1.9% year on year and 3.5% over five years.
But the rural market has not been seeing growth. In this sector prime property prices are up just 0.7% year on year, down 0.2% quarter on quarter and down 4.2% over the last five years.
Savills expects prime London values to remain broadly flat through 2016 and most of 2017, before gradually returning to trend growth, with five year forecasts of 20% growth across all of the prime London market.
Prime regional house prices are forecast to rise 2% in 2016 and 21% by 2020, with London’s extended commuter belt outperforming all other regions to rise 24% in the next five years.