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Prime property buyers in the UK more cost conscious, analysts suggest

Its new report says that at the end of last year it was anticipated that 2013 would mark a turning point in the prime markets. On the one hand, price growth in the prime London markets was widely expected to slow in response to the changes in stamp duty and associated taxes. On the other, the gap between prices in London and the country, which has widened substantially since 2009, was expected to draw demand into, and consequently revive, the prime markets beyond the capital.

However, the experience of the first six months suggests that these expectations were premature. Despite political posturing regarding mansion taxes in February and March, prices for prime property in London have risen by an average of 4.8% in the first half of the year.

Over the same period £2.6 billion has been spent on £5 million plus properties in the capital, up by 23% on the same period last year.

By contrast, the prime regional markets have remained relatively subdued. Overall prices have risen by just 0.3% on average in the past six months. Whilst transactions have been more buoyant than in the mainstream markets, there have been few signs of a discernible improvement.

‘This is not to say that the tax changes for £2 million plus property have not had an impact. The total amount spent in the market on £2 million property fell by 15% between 2011 and 2012 to £16.7 billion. Indeed, we saw some evidence of small price falls in some of the most expensive properties in the central London markets in the three months to the end of June,’ said Lucian Cook, director of residential research at Savills.

Overall, price growth has continued in prime central London but at half the levels in the prime South West London markets where prices have risen by 8.5% over the past year.

This has made some buyers, including non-UK buyers who nonetheless live and work full time in London, more cost conscious.
Whilst prices in Knightsbridge are further above their pre-crunch levels than in any other area, the greatest annual price growth has been seen in Fulham with an increase of 13%.

Here prices, at £980 per square feet, are roughly half of the average for prime central London. Our analysis of prices at ward level suggest that the average price of all property sold in Knightsbridge and Belgravia in the past five years has been over £2.6 million, the highest of any of the 9,800 or so wards in Great Britain,’ explained Cook.

He pointed out that the equivalent figure in Parsons Green, which at number 21 in the most expensive list, stands at £1.2 million. Such a flow of wealth has been similarly evident in similar markets such as Wandsworth, Richmond and Islington.
However, evidence of a more widespread ripple effect has been sporadic, causing the gap between prime London prices and those for prime properties in and beyond the commuter zone to widen further.

The few exceptions are wealthy wards such as Oxshott and Stoke D’Abernon and Cobham Fairmile where prices are back to their pre crunch levels and over the £1 million mark.

Beyond London and the Home Counties, the highest value ward is St Margaret’s sitting in central north Oxford, where over the past five years, prices across 497 sales that have been recorded by the Land Registry have averaged just over £700,000.
This is representative of a number of prime urban markets, including the likes of Newnham in Cambridge, Lansdown in Bath and Murrayfield in Edinburgh, that have outperformed their prime rural counterparts.

However, there has not been great evidence of price increases in 2013 beyond London. Equally neither has there been much evidence of price falls, with the exception of country houses in Scotland and some coastal properties for which second home buyers have been scarce. In the important second quarter, price movements in the prime regions have averaged between +1% and -1%.

Savills expects all regions of the UK will see house price growth this year but there will continue to be a distinct north/south divide in the speed of recovery according to its revised five year housing market forecasts.

The firm now expects UK house price growth to average 18.1% by the end of 2017, compared to the 11.5% anticipated when its forecasts were originally published in November 2012, though regional variations will range from 25.1% for the mainstream London average, slightly ahead of the 24.3% forecast for prime central London, to 12.5% for the North East.

While mainstream London values are now 4.8% above their previous peak, Savills says that the North of England and Yorkshire and the Humber will fail to return to peak 2007 values over the next five years, continuing to fall marginally in real terms over the five year forecast period.

‘Current measures such as repossession levels and transaction levels indicate that the regions of the Midlands and the North are not in a position to match the price growth anticipated further south. But towards the end of the five year period, when expected interest rate rises start having an impact, we would expect to see a convergence of house price growth before lagging markets should begin to play catch up,’ said Cook.

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