There is now clear evidence that the introduction of much higher rates of stamp duty for homes over £1 million in the UK almost two years ago has created a two speed prime regional housing market.
The latest analysis report from real estate firm Savills shows that recent price growth has been dictated more by house size and value than by location and overall buyers in this sector are more cautious due to stamp duty and an uncertain economic outlook.
The report points out that prime London house prices have fallen by an average of 3.6% from their peak of 2014 and by substantially more in the central London markets. By contrast, the prime regional housing markets of England, Wales and Scotland have shown headline price growth, albeit modest.
The data shows that over the past year, growth has ranged from 3.6% in the outer commuter belt, between 30 and 60 minutes travel time from London to just over 1% in the Midlands, the North of England and Scotland.
However, no price growth was seen in the last three months, as the vote to leave the European Union tempered demand. Small falls of 0.9%, were seen in the London suburbs, reflecting the buyer caution evident in all discretionary prime markets.
The report also points out that these broad regional trends mask significant variations between different property types and performance in all locations is very price band dependent. On average, homes worth under £500,000 have gained 7% since the end of 2014, compared to falls of 2.3% for properties worth over £2 million.
A more detailed look at house price growth by property size reveals far greater divergence and underscores the post credit crunch buyer preference for urban locations. Prime town and city houses, worth on average £1.3 million, have risen an average 2.7% over the past year and 14.1% over the past five years. Large country houses, worth £3.5 million or more, are still showing small price falls and values are 7.5% below their level five years ago.
A slowing of price growth is now also becoming a feature of major regional city markets where values have risen most steeply post credit crunch, the report. This has left some locations looking fully valued, particularly as price rises have pushed the average prime house price over the £1 million mark and into the higher stamp duty range. Cities such as Oxford, Cambridge, Bristol, Bath and Winchester, which have all in part been driven by equity from London, are now seeing price growth level off.
‘The introduction of higher stamp duty rates certainly shifted the balance between prime London and the regional markets. Londoners looking to make the move out will be watching the value gap closely to ensure they do not miss the real buying opportunity,’ said Lucian Cook, director of residential research at Savills.
‘However, the softening of values in the suburban and commuter markets closest to London over the past three months, and slowing of growth in key regional city markets, suggests sellers cannot be complacent,’ he pointed out.
‘Buyer sentiment across all markets remains sensitive and these figures are a clear signal to sellers that they must remain realistic on prices. However there remains demand for good prime housing stock, particularly that which is best in class, and appropriately priced,’ he added.
