However, the firm points out that while the increase may have marked the first reversal of the steady declines seen since the first quarter of 2011, prices remain below the levels seen during the market trough in the wake of the financial crisis, and are roughly around levels last seen in 2004.
The index shows that there is a split market with prices of sub £2 million and £5 million plus properties rising in the first quarter while values continued to fall for houses worth £2 million to £5 million.
The data also shows that stock volumes climbed, with 7% more properties coming to market than in the first quarter of 2012 and more foreign buyers, especially Russians.
Knight Frank head of UK residential research, Gráinne Gilmore, said that price performance is becoming more dependent on property value. While average values of sub £2 million prime properties climbed between January and March, the value of houses worth between £2 million and £5 million continued to fall, taking the combined annual decline in this price bracket to 4.2%.
She points out that the higher 7% stamp duty charge for £2 million properties introduced in March last year is a key factor in this multi speed market, and agents report that faltering confidence on city jobs and bonuses is also having an impact.
In the super prime £5 million plus homes market the picture changes again. Prices for homes in this band rose in the first quarter, continuing the upward trend seen since the middle of 2011 amid increased competition for super prime properties as more international buyers entered the market.
‘The weakness of sterling coupled with the decline in values seen over the last few years have combined to make prime country property an attractive investment for those buying in foreign currencies,’ explained Gilmore.
Some 55% of homes in this bracket were sold to overseas buyers in 2012, up from around 40% in 2011 and 2010. One in four homes was bought by a buyer from Russia or CIS, while European buyers accounted for around one in 10 purchases.
The Home Counties remained the hotspot for super prime country house transactions last year, with 82% of all such sales happening in these counties, up from 76% in 2011.
Prices also continue to outperform in key commuter towns. For example, the average price of prime houses in Oxford have been rising for a year, and are now up nearly 5%, while prices in Esher have been rising moderately for three years, climbing by 20% over that period, although values are still around 10% lower than their 2008 peak.
Gilmore said that there is evidence that pent up demand is starting to come to the market, for example, in Hampshire there has been a noticeable rise in buyers looking in the market who are determined to make their move despite no real change in the outlook for prices or the wider economy.
‘The release of this pent up demand may well be seen in other areas over the rest of the year,’ she added.
