The firm’s prime London index rose by 2.9% in the final quarter of the year, taking annual growth to an average of 11.4%, exceeding all expectations of growth.
‘Across both prime London and the prime regions, it’s a story of domestic wealth dictating price growth. We believe that domestic wealth will force the next stage of market recovery. This is reflected in our forecasts which anticipate more modest growth in prime London next year that will serve to consolidate this rapid recovery, and stronger regional growth as wealth increasingly opts for a lifestyle move out of the capital,’ said Lucian Cook, Savills UK head of residential research.
The primarily domestic markets of prime southwest London beat all other areas, growing 14% year on year. Growth has been particularly driven by the strength of Fulham, the first stop for those moving out of prime central London, and the Wandsworth, Clapham, Battersea triangle favoured for its appeal to young families competing for the traditional Victorian housing stock, close to good schools and the green spaces of parks and commons.
‘The simple mechanics of supply and demand have driven this price growth. Greater numbers of affluent families have remained in London, putting pressure on a limited pool of housing stock in certain areas,’ explained Cook.
‘Those priced out are looking to emerging prime markets, while other have begun to re-look at the prime suburbs and commuter towns,’ he added.
Prime Central London has shown slightly more sober 7.9% annual growth, with significant variation depending on location. The Savills forecast, published in July, anticipated growth of just 6% over the year in this market. The ultra prime segment, with values averaging £15 million, rising just 2.1%.
‘Whilst transactions in the ultra prime market have remained robust, buyers are aware of the preceding price growth that has left prices in the ultra prime market 37% above their pre-credit crunch levels,’ Cook pointed out.
Marylebone was the star performer, rising 17.4% year on year, with domestic and international buyers attracted to its urban village lifestyle and relative value pricing compared to prime central London. Here, values average £1,500 per square foot, compared to prime central London at £2,000, and Fulham at £1,000, making Marylebone a good stepping stone between the more established core prime central and more of an outer prime London location.
‘This is a good example of a market that has become increasingly valuable, as the area that is considered prime by buyers has been pushed outwards at the fringes,’ said Cook.
East of City markets, that have lagged other prime London locations, have also benefitted from displaced demand amongst younger households, with values rising 9.5% year on year, much higher than the 5.2% recorded in 2013.
‘In January of this year we stuck our necks out and called the bottom of the prime regional market and can now confirm a regional market in recovery,’ explained Cook.
Average prime regional annual price growth is running at 3% with 1.5% growth in the fourth quarter suggesting a steady, sustainable pattern of growth. There are now clear signs that recovery is spreading beyond the commuter zone, with growth in the rest of the South of England up by 2.2% in the quarter.
However, there is a strong divide between urban and rural prime. Prime cities in the outer commuter zone, notably ‘little London’ locations such as Oxford, Cambridge, and Winchester, where there is clear evidence of London buyer equity and strong local economies, showing growth of 10.9% year on year. By contrast, rural property prices across the region have risen by just 2.8% year on year.
Savills has also recorded a big final quarter bounce in prime coastal property values, with evidence of discretionary second homes buyers re-entering the market. Prices jumped 4.9% in the quarter in the coastal markets of the South West and East Anglia, but are still 22.4% below peak values.
The impact of the 7% stamp duty threshold is still being felt, with a real divide in the market above and below the £2 million mark. As a result, the country house market has risen by just 0.3% year on year.
‘Whilst London has accommodated the increases in stamp duty, the country house market has been less able to do so, particularly with a shift in focus towards prime urban property in the uber towns,’ Cook concluded.
