For the time being this has slowed the ripple effect, despite the significant value gaps between London, the commuter zone and beyond, which would normally drive a flow of demand through the different segments of the prime housing market at this stage in the cycle.
As a result, annual price growth in the prime regional markets stands at a subdued 1.6% on average.
Taxation still an inhibitor
Though the threat of a mansion tax has now evaporated, the market continues to be held back by tax considerations. In London and at the top end of the country market, the increased cost of stamp duty, following the Autumn statement of December 2014, remains a barrier to both price growth and activity.
Illustrating this fact, in the regional housing market over £2m prices are -1.7% below their June 2014 level. In Scotland the introduction of the Land & Buildings Transaction Tax (the replacement of stamp duty which has introduced higher rates of tax at lower price points) has caused prime values to fall by an average of 0.6% in the past quarter and by 0.9% year on year.
In England & Wales the markets under £1m and between £1m and £1.5m have been less affected by these tax concerns but more affected by weak buyer sentiment and the restricted availability of mortgage debt feeding up from the mainstream markets.
The role of debt
Despite a continued benign interest rate environment, transactions in the mainstream market appear to have plateaued at around 1.2m per annum. With the mortgage regulations restricting the amount of debt prospective buyers are able to obtain and restricting their ability to trade up the market, this is still well short of pre-crunch norms.
Though mortgage availability has a less significant direct impact in the prime markets, it will impact on some buyers in their 30s and 40s. While restricting the amount they can borrow, this may act as a catalyst for them to move into the commuter zone as they look to stretch their debt and equity further in less expensive markets.
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