In the three months to December, the prime regional housing market saw the strongest quarterly growth in over three and a half years, with average values increasing 1.5%. The signs of recovery are clear as year on year growth stands at 3.0%.

For the first time, the wider south of England saw higher quarterly growth than the markets closer to London. A clear sign that recovery is spreading beyond the commuter zone, with growth in the wider of the south of England up by 2.2% in the three months to December 2013.

However, the prime suburbs of London have seen the strongest bounce back since the 2007 peak of the market, with average values now 2.9% above their previous peak. With annual growth of 4.7%, this market is firmly in recovery due to the flow of wealth coming out of the capital. In 2013, 54% of buyers in the suburban market moved from London, a higher percentage than any other region.

Those moving out of London continue to be attracted to urban rather than more rural locations. This is evident in the prime cities in the outer commuter zone – notably ‘little London’ locations such as Oxford, Cambridge, Winchester - where there is clear evidence of London buyer equity and strong local economies, showing growth of 10.9% year on year. By contrast, rural property prices in this region have risen by just 2.8% year on year.

Over the fourth quarter of 2013, prime coastal property values saw evidence of discretionary second homes buyers re-entering the market as prices saw a big final quarter bounce, increasing 4.9% in the coastal markets of the south west and East Anglia. However, average values are still 22.4% below their previous 2007 peak.

The prime markets of the North and Midlands have been far more subdued than their southern counterparts, though there are signs that even amongst these markets prices are bottoming out, led by prime properties in predominantly urban locations such as York and Chester.

In Scotland, prices of properties within the prime urban areas of Glasgow and Edinburgh have outperformed more rural locations due to a rebalancing of supply and demand. Glasgow City saw an annual increase of 2.3%, larger than all other areas.

£2m+ country house market

The impact of the 7 per cent stamp duty threshold is still being felt, with a real divide in the market above and below the £2 million mark. As a result, the value of country houses over £2m fell -0.7% on average year on year, however the fourth quarter of 2013 saw a small increase of 0.3%.

Regional variation within the £2m+ market continues to be evident with the markets furthest from London seeing falls over the year with Scotland witnessing the largest drop in values at -6.4%. However, the markets closest to London saw the biggest annual increase, with the South East seeing an annual rise of 1.9%

Outlook

Looking forward, we expect that house prices in the prime regional market as a whole will perform in line with prime London over the course of the next five years as we enter the next phase of housing market recovery. However, we anticipate the suburbs and commuter locations to outperform prime London with the uber towns best placed to take advantage of this.

The prime markets face some challenges over the next five years given the focus on taxation of high value property that has already resulted in increases in stamp duty above £2m. With an election in 2015 and taxation high on the political agenda, any further changes to the taxation of high value property risks a period of sobriety, however our five year forecasts remain strong.

Taken from
Market in Minutes: Prime Regional Residential Markets