Prime London house prices rose by an average of 2.6% in 2014. However, 2014 was a year of two halves with prices rising by 4.9% in the first half and falling by a net figure of -2.2% in the second half, predominantly due to the stamp duty changes introduced in the Autumn Statement on December 3rd 2014, which particularly impacted the higher value markets.

The strongest performers in 2014 were the markets up to £1m and in the £1-2m range. These saw annual price growth of 7.9% and 3.3%, reflecting the fact they are less adversely affected by the stamp duty changes and would be outside of the scope of opposition proposals for a mansion tax.

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The greatest impact of the stamp duty increase was seen in the most valuable markets of prime central London, which have seen the strongest price growth in recent years. In these central markets, where prices average £4m, values fell by -4.2% in the last quarter, contributing to small falls of -1.3% year on year.

Though the £5m+ market saw slightly bigger price falls of -2.7% in 2014, there were still well over 500 sales in this part of the market over the course of the year. These had an aggregate value of over £5.5bn, being within 3% of the previous year. Of these, over 250 took place in the second half of the year.

It will take time for the effect of the Autumn Statement stamp duty changes to become clear, but early signs are that the additional cost is predominantly being borne by sellers through price adjustments similar to the amount of extra stamp duty.

There is evidence some of the froth had come off of the market before the Autumn Statement. Our analysis suggests that even without the stamp duty changes, values were on track to soften by around -1.0% in the final quarter of 2014, in part due to pre election uncertainty around high value property taxation. The stamp duty changes took that adjustment to -2.6% on average.

This being the case, early indications are that where stock is priced to reflect these circumstances, the market continues to function with a healthy level of transactions.

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Taken from
Market in Minutes: Prime London Residential Markets - Jan 2015