UK prime country house market affected by stamp duty change in first quarter of 2016
Prime country house prices in the UK increased by 0.3% on average in the first quarter of 2016, taking annual growth to 2.4%, down from a high of 5.2% in 2014.
The easing of price growth since 2014 reflects a greater sensitivity to pricing from buyers in the prime market following successive increases in stamp duty that culminated in the changes introduced in December 2014.
The details from the latest prime country house index from Knight Frank also shows that homes under £1 million have outperformed other sectors, rising by over 4% annually.
Sales volumes in the first three months of 2016 were up by nearly a quarter year on year and Knight Frank forecasts price growth of 3% across the prime country market in 2016.
This first quarter of the year has probably been affected by the announcement in November 2015 that buy to let investors and those purchasing second homes would be subject to an extra 3% on the rate of stamp duty from April 2016, the index report explains.
It says that the November announcement has acted as a catalyst for some buyers looking to forestall a higher tax bill. This contributed to a notable rise in activity in the first three months of 2016, with Knight Frank figures showing a 24% rise in sales volumes across the prime country market compared to the corresponding period of 2015.
During this time, activity has primarily been concentrated on the sub-£1 million market, boosted further by a growing economy and continued low interest and mortgage rates. As a result this sector experienced the strongest price growth.
In contrast, homes worth £5 million or more saw values fall by 2.7% over the same period, with the higher transactional costs increasingly factored into pricing.
With Knight Frank forecasting price growth of 3% on average this year, the report also says that key town and city locations are likely to outperform, as the trend for urban living continues to grow and more Londoners make the move out of the capital.
In the short term, however, uncertainty surrounding the outcome of the European Union referendum could have an impact on the market, causing some buyers to adopt a wait and see approach until after the vote, the report concludes.