Prices have shifted upwards now for 11 consecutive quarters with annual growth also up slightly to 2.7% on average, up from 2.3% in the second quarter but down from a recent high of 5.2% in 2014.
The market continues to feel the impact of the increased cost of stamp duty, following the Autumn Statement in December 2014, according to the report from real estate firm Knight Frank.
It says that this continues to weigh on both price growth and activity at the top end of the market. In fact, the latest figures from the Land Registry show that between January and July there have been 35% fewer sales with a value above £1.5m outside of London compared to the same period last year.
The prime market below £1.5 million has been less affected by these tax changes and prices for homes in this sector have risen by nearly 4% annually over the year to September. In comparison, over the same time properties priced above £1.5 million, the point at which the 12% rate of stamp duty kicks in, have risen by 2%.
Under £1.5 million, price growth has generally been underpinned by demand for homes in urban centres. Price growth in town and city markets including Bristol, Bath and Oxford for example, where buyers continue to be attracted by good schooling, amenities and transport links, has outperformed the wider prime market.
‘There remains a significant price differential between property prices in the prime country market and in London, while anecdotal evidence from agents suggests that there is pent up demand from buyers in the Home Counties and the South West. This could help underpin prices and an increase in activity levels across the market as the year progresses,’ the report says.
However, the average prime country house price is still 14% below its 2007 peak. In contrast, prime prices in London are, on average, 34% higher than their previous peak values. ‘The rise in London prices in the last few years means that buyers looking to swap the city for the country are able to get a lot more property for their money, with such buyers able to take advantage of the relative discount which currently exists,’ the report adds.
In Scotland the country house market has also been affected by tax changes with the new Land and Buildings Transaction Tax (LBTT) being introduced in April 2015. The report shows that as a result prices fell by 0.7% between July and September, the first time that prime prices have fallen on a quarterly basis in over two years.
The report points out that the levy, which replaced Stamp Duty Land Tax, has resulted in a significant increase in purchase costs for buyers in the prime market and adds that negotiations between buyer and vendor have become more protracted and in some instances this has led to prices being adjusted downwards to account for the higher charge.
The quarterly fall means that annual price growth slowed to 0.6% over the year to September 2015, down from a recent high of 2.8%. However, despite the slowdown in price growth, activity increased. The number of Scottish country house sales completed by Knight Frank in the third quarter of 2015 rose markedly compared to the same period last year.
The reasons for this are twofold, the report says. Firstly, the third quarter of 2014 saw a degree of uncertainty surrounding the outcome of the independence referendum which dampened sales activity in this section of Scotland’s prime residential market. Secondly, while purchase costs have risen, Scottish country house prices remain 23% below their previous peak in 2007, and their relative ‘discount’ to other markets is appealing to buyers.
‘Some 64% of our buyers so far in 2015 have come from outside Scotland. While the majority of these have relocated from the rest of the UK, it includes purchasers from Hong Kong, the US and the United Arab Emirates, which only serves to underline Scotland’s global appeal,’ said Ran Morgan, head of Scotland residential sales at Knight Frank.
‘The opening of the new Borders Railway should act as a boost to prime markets in the south, with stations on its route now within an hour’s commute of Edinburgh,’ he added.
The new rail line, which runs from Tweedbank to Edinburgh, brings a large area of the countryside in Midlothian and in the borders within easy reach of the capital by train for the first time. Transport Scotland has estimated that the railway could contribute £33 million to the Scottish economy.
The report concludes that in the medium term, activity across the prime market in Scotland is likely to moderate slightly as the market continues to adjust to the higher rates of LBTT. The Holyrood elections scheduled for next May and a consultation on council tax reform also have the potential to cause some uncertainty in the market.
