House prices in south west London grew strongly last year as buyers, priced out of central boroughs such as Westminster and Kensington and Chelsea, moved further out in search of better value for money. The demand has pushed values well above their peak 2007-08 levels in the most popular inner boroughs to the south west of the capital.

Lambeth saw the biggest price growth within south west London, with values rising by 21.3% over the year to January 2015 to an average of £535,000, according to Land Registry data. It was followed by Ealing, where prices grew by 18.9% over the same period to £452,000. Hillingdon, where the average value stood at £334,000, saw only slightly slower annual growth at 17.8%.

The ripple effect faded in Wandsworth and Merton, with annual growth slowing to 13.6% and 14.7% respectively. This is still strong but in summer 2014 annual growth in both boroughs had peaked at over 22%. Further along the ‘A3 corridor’ in Kingston annual growth has also slowed slightly, to 15.8%.

This reflects that the area is on a well-trodden path towards Surrey, favoured by equity-rich buyers moving out of central locations. As prices rose and perceived value for money decreased, secondary areas around south west London such as Clapham, Brixton and Putney, continued to see activity and price growth.

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^{Source: Land Registry}

Market moderates

Along with much of London, most of the price growth in the south west boroughs occurred in the first half of 2014. Price growth eased towards the end of the year as a result of tighter mortgage regulations introduced earlier in the year, increasing affordability pressures and the anticipation of base rate rises.

The Savills prime south west index refers to the band running from Battersea to Wandsworth and west to Wimbledon, Richmond and Chiswick. The slowdown in the South West was more pronounced at the top end of the market. While prime south west house prices rose by 4.4% in the first half of the year, according to Savills index, values fell by a net figure of 2.7% in the second half. This was predominantly as a result of stamp duty changes introduced in the Autumn Statement which pushed up the costs for buyers of higher value homes.

We expect the property market to continue to operate at a more moderate pace over the course of 2015 and for price growth to be subdued in the near future. However, with London’s population projected to rise to 11 million by 2050, according to the Greater London Authority, the ongoing imbalance between supply and demand for homes will continue to put pressure on the housing market.

New homes

Demand for homes in south west London resulted in a strong rise in new build values last year, especially where regeneration and major developments are taking place. However, if last year’s market was characterised by a flurry of new launches, some even involving overnight camping in order to secure a home, this year’s market sees the return to a steadier pace.

As we explain on ‘Where will the New Homes Be Built’, the market for new homes in London varies significantly across different neighbourhoods. At the top end, prime riverside developments in areas such as Fulham, Battersea and Nine Elms can command over £1,500 psf.

New build values in popular “town centre” locations such as Putney and Ealing Broadway are now at around £1,000 psf. The anticipation of a future Crossrail station at Ealing has also boosted demand in this area. Values at Wimbledon and Tooting Broadway, both on the proposed Crossrail 2 line, are currently around £700 psf. In outer boroughs, such as Sutton and Hillingdon, values are below £500 psf.

As the market slows and buyers become more price sensitive, quality and location will be key. New schemes will need to be sufficiently differentiated from the competition to realise full value potential, particularly in areas of greatest new supply.