Average house prices across London’s prime markets have risen more sharply over the past year than in any other 12 month period since mid-2010, with domestic buyer sentiment setting the pace of growth. Consequently values across prime London rose by an average of 13.1% in the year to the end of March.

Over the past year, almost two-thirds of prime London sales have been to UK buyers, with the strongest price growth seen in the less central locations favoured by domestic family buyers. Prime south west London – a band that runs from Battersea to Wandsworth and west to Wimbledon, Richmond and Chiswick – is up 14.7% year on year. Similarly prime north London, centred on Islington, is up 15.8% year on year.

Positive sentiment in these domestic wealth corridors is now feeding into the Wapping and Canary Wharf markets, which have lagged to date but are now witnessing a resurgence. Values have risen by 4.4% in the quarter and by 17.2% over 12 months, with the warehouse conversion market of Wapping shooting up 21% in the past year as sentiment amongst young City-based home buyers and investors continues to improve.

By contrast, prime central London growth was a lower 8.9% year on year, with quarterly growth slowing to 2.0%.

As we forecast, the core prime central London locations of Chelsea, Knightsbridge and Belgravia are showing signs of reaching a plateau, having previously led the recovery. These markets have become more price sensitive, particularly at the very top end where buyers are more discretionary.

By contrast, the relative newcomer to the prime central London category, Marylebone, is still showing strong growth because it continues to offer value in the context of central London.

Values in Marylebone rose by 4.2% in the quarter to leave them 19.3% ahead year on year. This compares to marginal growth of 0.6% in higher value Chelsea, Knightsbridge and Belgravia, and just 5% year on year.

At the top end of the market, values of properties worth over £10 million have risen by just 1.9% year on year.

Click on the images below to enlarge.

Where does this leave prime London?

The Land Registry Index shows how values in prime boroughs have become dislocated from the rest of the London market, with prices in boroughs such as Kensington & Chelsea and Hammersmith & Fulham at an all-time high relative to the average for London as a whole.

However, if we accept that the drivers in these markets are different in nature to the wider mainstream housing market, this does not mean they are overpriced. Indeed, the prime London market should more readily be judged against international comparators.

Similarly, it is easy to think that recent levels of house price growth have been extra-ordinary and unsustainable, but if we look at real (inflation adjusted) house price growth over a 10 year period, the 52% growth for the prime London housing market is a little way below the long run average and well short of the 165% peak in September 2002.

This said, the market does face some short term challenges which mean that growth is expected to slow across the prime London market over the next 18 months.

Firstly, the market has to contend with political rhetoric regarding the taxation of high value property 
and ongoing background noise regarding a possible mansion tax. Secondly, the levels of prime new-build stock coming to the market 
are rising and high relative 
to occupational demand.

Taken from
Market in Minutes: Prime London Residential Markets - April 2014