Prime property values in London could see 3% growth in 2016

Prime property values in London are set to see modest 3% growth throughout 2016 but the fringes of the capital are expected to see much faster price rises of 5% or higher, a new forecast suggests.

The market below £1.5 million is predicted o be the main driver of price growth in the coming year, as Stamp Duty continues to take the shine off the wealthiest segment of the London property market, according to the report from agents Marsh & Parson.

Tooting and Queen’s Park are named in the report as the locations to watch in the coming year and agents are expecting an influx of buyers in January as the new year markets gets up to speed quickly.

As a result, the popularity of more affordable and emerging locations is boosting activity and prices in these areas above levels seen elsewhere across the capital, the report explains.

It points out that with direct transport links into Bank on the Northern line, and a leafy common on the doorstep, buyer demand has quickly spread from Balham to neighbouring Tooting. And in the North West, Queen’s Park is providing a credible ‘next step’ for those priced out of North Kensington and Little Venice, and is well serviced by the underground and over ground rail connections directly into Euston.
 
With a top rate of Stamp Duty of 12% now in place, the highest tiers of the London property market have been severely tempered in recent months as buyers struggle to absorb the additional transaction levy.
 
The report also shows that total prime London property sales dropped between the second half of 2014 and the first six months of 2015 and  it is sales above £937,000, the threshold at which the higher Stamp Duty charges apply, which have seen the sharpest fall of all.
 
In 2015, some 59% of London property sales have been for homes below the £937,000 marker, while purchases above this price threshold account for 41%, as the top of the market slows.
 
In 2016 sellers will have to adjust their price expectations to make their properties more competitive and attractive. But properties that are priced realistically will still sell well, and quickly. At the start of this year, London homes for sale were typically achieving 95% of their asking prices, but this has climbed throughout the year to stand at 97% as of November 2015.

‘The Chancellor’s Stamp Duty changes have certainly dulled the London housing market of late, and whilst 2016 will see a return to growth it will be rather lacklustre. There now exists a fundamental unevenness between sellers who want to sell their properties at the prices they were at six months ago and buyers, who are seeking recompense for the increased Stamp Duty levelled at them,’ said Peter Rollings, chief executive officer of Marsh & Parsons.

‘It’s already started but it’s going to take a while to iron out these differences, and in the meantime the brightest spots of house price growth will be in places where average house prices are climbing from a lower base,’ he pointed out.
 
‘Gone are the days of travel card zone snobbery and London buyers will increasingly stretch their aspirations southwards and northwards well into zones three and beyond to find the best priced properties. What we have commonly considered Prime London is growing geographically, feeding off the popularity of new progressing areas,’ he added.
 
The report also suggests that the majority of London house price growth will occur in the first quarter of next year, as a new influx of buyers start looking for properties in January. The first quarter of the year typically experiences higher levels of buyer demand than others and with the introduction of a further 3% penalty at all price bands for buy to let investors and those buying a second home, the first quarter of 2016 will be particularly busy.

In January 2015, Marsh & Parsons recorded a 14% month on month jump in buyer registrations, and it is expected that this pattern to continue in 2016. Demand across the first quarter of 2015 as a whole was up 19% on the fourth quarter of 2014.
 
As of December 2015, there are 13 buyers per every available property on the market, and this has risen from 10 a year previously. As demand continues to outstrip substantially supply, London house prices will only move upwards in 2016.
 
Marsh & Parsons predicts that interest rates will finally begin to rise in 2016. The current Bank of England base rate of interest stands at 0.5% and the estate agency expects the rate to increase by 0.25 percentage points to 0.75% towards the end of the year.
 
‘The first half of next year is where the main action will take place. Typically we see buyers flood onto the market straight after the Christmas break, having postponed plans in the festive build-up, to make a fresh start to the year,’ said Rollings.
 
‘But we expect that as the economy strengthens throughout 2016 the Bank of England will become confident enough to raise the base rate, albeit only slightly. Nevertheless, even a minor increase can be significant as it is an indicator of the Bank’s long term intentions namely, to get rates back to where they were pre-2008,’ he explained.

‘Borrowers have been spoilt of late, finding a wealth of competitive mortgage deals available, but this will serve as a reminder to would be buyers that the current rock bottom rates will not last forever. As a result, we can expect more buyers and existing home owners locking in to longer fixed term mortgages in the early stages of next year, in hope of forestalling the impact of any rate rises,’ he concluded.