Steady price growth forecast for London’s prime property market

Homes in London’s prime property market are set for steady price growth in the mid term as the market adjusts to new constraints such as tax and inflation, new research shows.

Stamp duty reform at the end of last year, very low inflation and the mortgage market review which came into being in 2014 will continue to moderate London’s prime housing markets over the short term, according to the latest five year forecast from real estate advisor Savills.

But the fundamentals of wealth generation and demand point to a steady medium term price growth and the key trend will be different patterns of growth across the different tiers of the prime London market.

The prime market covers a broad swathe stretching from Ealing in the west to Canary Wharf in the east and from Highgate in the north to Wimbledon in the south, dictated as much by price band as by location.
As such, the higher value markets of prime central London, where the average house price in the Savills index is around £5 million, are expected to remain flat next year, but record five year growth of 21.5% given the medium term forecasts for international and domestic economic growth and wealth generation. 

Prime central London values are currently showing annual price falls of 4.6% but are expected to have largely absorbed the impact of higher stamp duty charges by the end of 2015, to close 2015 some 2% down year on year.
Other prime London markets are less impacted by higher stamp duty charges and are expected to see moderate price growth through next year, rising 2%, the report says. However, tighter lending criteria will continue to be a constraining factor for these more domestic markets, capping five year growth at lower 18.2%.
‘The stamp duty reform of December 2014 was a defining moment for the top end of the prime London market, particularly as it was looking fairly fully priced having grown significantly to outperform the rest of the market over a 10 year period,’ said Lucian Cook, Savills head of residential research.
‘It is fair to say that last year’s Autumn Statement took the market by surprise and has essentially prevented any bounce back in values post-election, leaving little scope for significant value uplift next year, particularly in a low inflation environment,’ he explained.

‘As such, we have pushed out our five year forecast by a year to 18 months, building in a period of little or no growth as the market continues to adjust to a new fiscal and regulatory environment,’ he pointed out.
‘Thereafter, we expect the depth of the market and the maturity of London as a global city, coupled with job creation and economic growth forecasts to return to long term trend rates of real price growth, particularly, but by no means exclusively, in core prime central London locations,’ he added.