Prime central London prices rose by 0.1% last month to take annual growth to 1.2% while prime central London rents dipped by 0.3%, says the report from real estate firm Knight Frank.
The data also shows that price growth for prime property in some regional hubs continues to outperform the wider prime country house market.
The stability in UK property prices is likely to be underpinned by a further period of ultra-low interest rates and a solid, although slowing, economic recovery but the report warns that the political outlook is less clear as an European Union referendum draws closer.
Grainne Gilmore, head of UK residential research at Knight Frank, pointed out that interest rates being left unchanged by the Bank of England for the 83rd consecutive month in February was not a surprise.
‘But the data released by the Bank when announcing its decision has led economists and markets to change their expectations about when rates may start to rise. Whereas many had forecast a rise around the middle of the year, the verdict is now that rates are on hold until the final quarter of the year, if not 2018,’ she said.
‘This change was prompted by the Bank’s forecasts, showing muted inflation and wage growth in the coming years as well as a downgrade in forecast GDP growth. The central bank now expects 2.2% GDP growth this year, instead of 2.5%. The slower growth is attributed to global economic conditions, not least the effect lower oil prices are having on many economies around the world,’ she explained.
‘However, senior bank officials were clear that the UK economy was still experiencing a solid recovery and that the fall in oil prices was a net good for UK consumers, helping boost consumption and therefore wage growth,’ she added.
Households expect prices to continue rising this year according to the latest House Price Sentiment Index (HPSI) from Knight Frank and Markit Economics. Any reading above 50 on this index, which is a bellwether for house prices, suggests prices are rising, or are set to rise. The future index has now been above 50 for 35 consecutive months.
However, Gilmore also said that the outlook for 2016 must take into account the policy changes and political decisions which will be made this year, not least another change to the stamp duty regime in April, the Mayoral Elections in London in May and a possible decision on whether the UK should stay in the European Union.
‘As seen following the stamp duty changes in December 2014, and last year’s General Election, the market can adjust to political and policy changes, but periods of uncertainty can take their own toll on market activity,’ she added.
While prime central London property prices edged up by 0.1% in January, taking the annual increase to 1.2%, a breakdown of the data shows that the market remains localised with growth ranging from 7.7% in Islington to a fall of 6.4% in Knightsbridge.
‘Sales volumes also picked up towards the end of 2015, reflecting vendors responding to the recent trends in the market around pricing, especially in light of the stamp duty changes brought into force in late 2014,’ said Gilmore.
‘Viewing levels also increased in January, although the price sensitive nature of the market is also shown in a slightly higher fall-through in sales volumes, with a 7% increase in the number of properties withdrawn from sale in 2015 compared to 2014,’ she added.
The figures also show that in the country market, prices rose by 3.1% in 2015, but several key urban markets outperformed this growth, with 10.6% growth in prime markets in Cheltenham, 6.6% in Bristol and 4.5% in Bath during the year. Prime prices in Oxford rose by 1.3%, but this followed around 6% growth in 2014.
‘Key to the outperformance in these towns has been good transport links, especially to London, good schools and amenities. In Oxford, around one in 10 buyers are relocating from London or the wider South East,’ Gilmore said.
She added that there could be a further flurry of activity in the coming months as buyers purchasing additional properties seek to beat the 01 April deadline at which point extra stamp duty will be levied on these transactions.
