Within the prime residential markets of the UK, there are clear signs that we have entered the next stage of the housing cycle. The London suburbs outperformed the capital for the first time since the credit crunch, recording growth of 5.7% in the first six months of 2014, compared to the prime London average of 4.9% according to Savills prime index.

Within prime London, the rate of price growth has slowed dramatically as the heat came out of segments of the market that have seen the highest levels of price growth. Prime central London growth slowed to just 0.4% in the second quarter of 2014.

Click Table 3.1 below to enlarge

Price variations

However, the different tiers of the prime central London market are not performing in line with each other. At the very top end of the market, homes worth over £10 million, fell by -1.5% in the second quarter of 2014, meaning such homes saw no net growth on annual basis. Conversely, steady price growth has continued for properties valued under £2 million.

The strongest growth in prime London is now being seen in the lower value core prime markets of Islington, Canary Wharf and Wapping, reflecting confidence among young financial sector employees and investor buyers targeting City based renters.

Wealth corridors

Perhaps it is most telling that the prime south west London market has also slowed over the past three months as more stock comes to the market from sellers who are finally making the traditional move out of the capital.

So far this year, 35% of sales in commutable locations have been to buyers from London, compared to just 28% during 2013. This change comes as the price differential between the capital and the rest of the UK reaches an all time high, encouraging them to make the big lifestyle change that previously they have been reluctant to do.

These London buyers are an important source of demand for the commuter locations and have contributed to the strong growth seen in these markets. Values throughout the commuter zone saw annual growth of 6.0% or more and are now back to or above their 2007 peak levels.

Beyond London's sphere

While all prime markets are now seeing positive price growth, the gap in values is still very pronounced beyond the sphere of influence of London. Despite seeing values increase by 6.4% over the past year, prices in the wider south of England remain on average -10.4% below their 2007 peak.

The picture is similar for prime property further afield. In the Midlands and the North, values have increased by 2.3% over the past 12 months but remain -15% below their 2007 levels.

Independence?

In Scotland, where values are still 22% below their peak, the impending referendum in September is undoubtedly having an impact on the property market.

While the outcome is unlikely to affect dramatically the intentions of existing Scottish residents, the uncertainty has had an impact on the number of buyers moving from London who, until the summer, were keen to take advantage of the value gap.

We would expect a decisive ‘No’ vote majority, to boost activity and consumer confidence in the housing market. In the event of a decisive ‘Yes’ vote, we would expect the current uncertainty to continue, with a further delay in the recovery.

Taken from
Residential Property Focus Q3 2014