South West London unlikely to see much property price growth, new research suggests

While there are early signs that the prime central London property market may be bottoming out, outer London markets are coming under pressure with further price falls forecast for this year.

New research suggests that the broad swathe of prime South West London in particular is set to see prices falls on an annual basis exceed those in prime central London for the first time since 2012.

Indeed, the research from real estate firm Savills shows that in prime South West London the pace of prices falls has picked up over the past three years in locations that are popular with families rather than overseas investors.

Values in London’s most expensive central locations slipped a marginal 0.9% in the final quarter of 2017, while annually prices fell by 4% in line with the firm’s expectations.

But from Battersea through Clapham and Wandsworth to the South, and Fulham, Barnes and Richmond to the West values fell by an average of 1.6% in the final quarter and 4.2% year on year, making this London’s weakest prime market segment.

Savills believes that prime central London is ahead of the curve in adjusting to current market conditions and the research shows that values are on average 15.9% below their 2014 peak, ahead of the first significant stamp duty increase. But the rate of price falls has slowed and values are now finding a level, the firm says, albeit no growth is expected for the next two years.

While prime South West London house prices are on average 7.3% below the 2014 peak, less than half the fall seen in prime central London. But the report points out that buyers in these markets are now feeling the constraints of the mortgage market review, as well as unease around the Brexit process and its potential impact on employment, particularly in the financial and business services sector.

Fulham, the market that traditionally behaves more in line with its central London neighbours than the rest of South West London, has recorded the steepest falls in this submarket. Prices fell by 4.6% in 2017 and are down 14.4% on the 2014 peak, in line with core prime central London locations such as Knightsbridge and Holland Park.

This means average values in Fulham, which passed the £1,000 per square foot mark in 2013, have fallen back to £890, just below the £910 prime Battersea average and well below Chelsea’s £1,600. This effectively repositions Fulham as a value location for those looking to make their equity stretch further than in prime central London, Savills says.

Looking ahead Savills is currently forecasting that prices in prime central London could see growth of 20.3% from 2018 to 2022 and outer prime London growth of 10.2% over the same period. But for South West London growth is not predicted until there is greater clarity regarding the Brexit process, according to Lucian Cook, Savills head of residential research.

‘A backdrop of political and economic uncertainty means the market will remain highly discretionary, while the high tax environment means that even international buyers remain reluctant to take advantage of the currency play. Our forecasts anticipate it will be two years before we see a bounce in values,’ he pointed out.

The research also suggests that lower value outer prime London markets were less impacted by stamp duty reform, but are now succumbing to weaker domestic buyer sentiment pending more conclusive Brexit negotiations, mortgage constraints and concerns regarding future interest rate rises.

‘We expect continued weakness in price performance in key outer prime London markets, and are forecasting small falls next year. These markets are much more dependent on domestic wealth generation and access to borrowing than prime central London. As such, our forecasts are for much more modest house price growth over the next five years,’ Cook added.