This issue describes a UK housing market that is diverse and fragmented, where conflicting signals on activity and price growth confuse those who are trying to put together the jigsaw puzzle of house price forecasts. Download here.

Since the downturn prime regional and country house markets have been left in the wake of the stellar performance of the prime housing markets of London. While prices in prime London are 27% above their 2007 peak, prime property prices in the commuter zone are yet to recover their pre-crunch zenith.

Beyond this area prime property prices are typically 15% to 25% below 2007 levels. However, the number of sales of £5m+ property continue to set new records in London, a price threshold at £2m has become entrenched beyond the M25, following recent increases in rates of stamp duty. Whereas annual price growth of large terraced houses in Fulham is in double digit territory, the prices of country manor houses have fallen by 2.5% in the past year.

However, as we look forward there are encouraging signs that the seeds of recovery are becoming more widespread. The proportion of London buyers has increased in every part of the prime regional market. Prices across the prime regional markets returned to modest price growth in the third quarter of 2013, except in Scotland where they at least appear to have bottomed out.

Within the inner commuter zone at least, the differential between the performance of prime town and country properties has narrowed significantly.

London’s prime time

Within London the picture is not entirely straightforward. Prices in the domestic markets of prime London such as Barnes, Wandsworth and Islington are rising at a much faster rate than in central London markets such as Kensington and Knightsbridge. In the hitherto rampant ultra prime market where values exceed £10m, price growth has ground to a halt, despite relatively buoyant transaction levels.

This prime London market has been under the political microscope for some time. There has been much, often ill-informed, chatter about the pros and cons of foreign buyers in the central London market.

The taxation of prime property has already been addressed through an increase in stamp duty and the imposition of annual charges where property is held in essentially corporate structures.

Figures from HMRC show that while transactions fell by 3% in the two boroughs of Kensington & Chelsea and the City of Westminster in the 2012-13 financial year, the stamp duty take from housing rose by over 29% to £708m.

This is £73m more than Scotland, Wales, Northern Ireland, the North East, North West and Yorkshire & the Humber put together.

Despite this, Labour and the Liberal Democrats continue to push proposals for a mansion tax on political rather than economic grounds. This is likely to cause uncertainty in the run up to the next general election, at a time when conversely, the mainstream housing market will be receiving a boost through government stimuli.

Flow of wealth

Ultimately, future price growth in this sector will be underpinned by the growth of global and domestic wealth. This has delivered inflation adjusted average annual price growth of 4.9% since 1979.

However, in the period of our forecasts the outcome of the election could determine whether there is a subsequent bounce in values or a modest fall and a slower return to these previous levels of growth.

Taken from
Residential Property Focus Q4 2013

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