Property values in the prime London residential market look as though they’re finding their level with the rate of decline slowing notably in the first three months of 2017, the latest research shows.
According to the analysis by Lucian Cook, head of residential research at real estate firm Savills, it could be an early indication of values bottoming out as prices across all of prime London fell by an average of 0.3% in the first quarter of the year, compared to a fall of 2.2% in the previous.
This means that values in the prime London market are some 6.1% below their 2014 peak with stamp duty changes having contributed to the decline but cook pointed out there are other factors also affecting the market such as international buyers’ increased exposure to capital gains tax and inheritance tax, leading to more reluctance in taking advantage of the weaker sterling.
‘The uncertainty surrounding the UK’s vote to leave the EU has exacerbated the slowdown resulting from tax changes. This has largely been driven by the unknown future, as opposed to any recognised weakening, of London’s economy,’ Cook explained.
Looking ahead Savills is forecasting that prices in prime central London will remain flat this year and in 2018 before surging 8% in 2019, by 5% in 2020 and by 6.5% in 2021, to an accumulated rise of 20.5% by 2021.
At the higher end of the market values fell by 0.8% over the quarter, much less than the falls of 4.8% seen in the previous six months. That leaves them 13.2% below their 2014 peak. Even at the very top end of the market, in the £10 million plus range, prices appear to be stabilising.
Cook also pointed out that despite low interest rates, these more domestic markets continue to be constrained by mortgage regulation. This means that those who need to borrow have begun to reach the limits of loan to income ratios.
‘The underlying outcome, across all of prime London, is that sellers have had to adjust their expectations. There is evidence that the resulting price cuts are beginning to coax buyers back into the market, although it remains price sensitive,’ Cook added.
The research also shows that sales of property worth over £1million in prime central London picked up in the final four months of 2016 and, so far in 2017 have been on a par with the same period in 2015, according to LonRes. March 2017 has seen the highest monthly transaction figure since March last year, when there was a surge in activity to beat stamp duty changes.
‘Prices across the prime London housing markets appear to have adjusted to increased stamp duty rates. However, we are now expecting values to remain broadly flat for the next couple of years, as the market continues to adapt to these higher transactional costs,’ Cook said.
‘Now that Article 50 has been triggered, general uncertainty around the impact of the UK leaving the EU is expected to mean the market is exposed to short term fluctuations in sentiment over this period, in line with the news agenda and negotiations going forward,’ he added.
‘London’s position as a global financial centre is critical to the longer term growth prospects in the capital. We are assuming that while some city job losses are to be expected, London will retain its current position. In addition, the capital’s evolution as a tech city is likely to support longer term growth prospects,’ he concluded.
