Higher taxes and election uncertainty put brakes on prime London house prices

Prices in the prime property market in London fell marginally in the first quarter of 2015, confirming concerns that higher taxes and pre-election qualms are affecting the sector.

They were down 0.5% quarter on quarter and this follows an average 2.6% price adjustment in the final quarter of 2014, according to the latest research from international real estate adviser Savills.

The firm says this was triggered by the stamp duty reform announced in December’s Autumn Statement and means that the 12 month rolling prime London average has slipped into negative territory.

However, Savills research is forecasting that prices in the prime London market will rise by 23% over the next five years assuming no further taxation of high value property.

The prime central London housing market has been most affected by increased stamp duty charges and values are down 1.1% on a quarterly basis and 4.3% year on year, a reflection of the fact that the more valuable markets have borne the brunt of increased stamp duty charges.

By contrast, the markets of Islington, Wapping and Canary Wharf continue to show positive annual growth, despite an easing in values in the past six months. Year on year the north west prime market is up 1.8% but down 0.6% quarter on quarter. North London is up 6.2% year on year and down 0.8% quarter on quarter.

The data also shows that the East of City prime market has seen prices rise 4% on an annual basis but down 1.5% quarter on quarter while in the south west prime market prices are down 2.6% year on year and down 0.2% quarter on quarter.

But over the longer term prices in the prime sector have seen considerable growth. Over the last five years prices in central London are up 30.8%, in north west London up 30.7%, in south west London up 38.1%, in north London up 45.6% and in east of City up 41.6%. Overall the prime market has seen growth of 36.6% over five years.

Since the peak of the market prices in price central London are up 33.6%, in north west London up 28.4%, in south west London up 33.7%, in north London up 42.3% and in east of City up 33.6%, taking the growth for the whole of London to 34.3%.

‘As we forecast in November, uncertainty regarding the general election and the potential for further taxation of high value property have contributed to a subdued market in the first part of 2015,’ said Lucian Cook, head of UK residential research at Savills.

‘The stamp duty changes came after five and a half years of sustained price growth for prime London property. This segment of the market is now looking fully taxed and sellers are having to factor in price adjustments equivalent to the stamp duty increase,’ he explained.

The analysis also shows that by contrast, the softening in the London markets has corresponded with a pick up in the number of Londoners circling the country market. Prices of homes below the £2 million threshold in the prime regional markets beyond London continue to show year on year price growth, and rose by 1.1% in the first quarter of the year. However, the market is still constrained by pre-election caution.

‘While we believe the fundamentals of demand and supply remain sound, the short term outlook for the prime property market is heavily dependent on the extent to which the election brings political certainty and whether the sector is subject to further taxation. Certainty will allow buyers and sellers alike to take account of the impact of any fiscal change,’ Cook added.

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