Price growth at the top end of the prime London housing market outpaced all other market segments for the three years post credit crunch, but since December 2011 the lower value parts of the prime market have shown the strongest price growth, reflecting changing patterns of demand.

Our prime London indices show that the various tiers of the market have performed quite differently at particular points over the past ten years, with corresponding shifts in the geographical patterns of growth. In the run up to the 2007/08 downturn, and immediately after, the highest value markets performed the most strongly. However, since December 2011 the trend has reversed, with lower value sub-markets showing higher growth.

^{Source: Savills Research}

Price movements

The most expensive markets have been most affected by the changing fiscal backdrop, notably the stamp duty reform introduced in December 2014. This triggered a downward price adjustment in the final quarter of last year, and has held back price growth subsequently.

Over the past year, price changes have broadly reflected stamp duty increases at different price points and therefore growth has been concentrated in the sub £2m market. Homes in the £500k to £1m range, which are subject to lower stamp duty charges, have risen by 3.0% year on year, and in the £1-2m range by a marginal 0.9%. By contrast, those over £2m have adjusted by an average of -2.6% and those over £5m by -4.7%.

Since December 2011 properties between £500k and £1m have seen growth of 32%, and those between £1m and £2m are up by 24% as the emerging prime markets take centre stage.

New wealth

This shifting pattern of price growth is in part a reflection of a change in the sources of wealth generation in the capital and the corresponding profile of demand. Whereas domestic buyer interest was heavily fuelled by the wealth generated in the financial sector prior to the credit crunch, we are increasingly seeing new tech businesses as wealth creators.

This trend is confirmed by ONS data showing the growth of new business enterprises, collated from PAYE and VAT registrations. London saw a 15% rise in the total number of business enterprises between 2009 and 2014 across all industries. However, while the Financial and Insurance Industries sector shrank by just under 2%, the number of businesses in the Information & Communication and Professional, Scientific and Tech sectors rose by 32% and 28% respectively over the same period.

These businesses cluster in less established commercial areas of London and new prime residential markets begin to emerge as a result. The boroughs of Islington, Lambeth and Hackney have seen the biggest increases in such businesses, an increase of over 6,200 business units in these two sectors, a rise of some 50%.

Emerging prime markets

Data from the 2011 census provides us with insights into the way younger affluent buyers, often at the forefront of this new enterprise, have pioneered new housing markets. By identifying areas of where wealthy under 35s more than double the number of wealthy over 50s we can see where this has happened.

This follows a pattern we have identified in the past, namely emerging prime markets tend to develop in locations that are ‘new, novel or next door’ to existing prime markets or a combination of all three.

In some cases the emerging prime locations include areas on the fringes of existing prime areas: locations such as Balham, Tooting and Colliers Wood in South West London or Kilburn and West Hampstead to the North.

Others coincide with the growth of new business enterprise such as Dalston, Hoxton, Spitalfields and Clerkenwell or Highbury and Finsbury Park.

A third group comprises maturing, primarily residential areas such as Ealing and Shepherds Bush, while regeneration areas such as Bermondsey, Surrey Docks and the Greenwich Peninsula have also attracted younger households.

^{Source: Savills Research, 2011 Census}

Extension numbers

Extending homes in established prime areas

With the cost of moving in the established prime London markets rising due to stamp duty increases, we expect more owners to extend their property. Planning application statistics indicate 220,000 people in England extended their home in the year to June 2015, adding an estimated £6.6bn to the value of their homes. This equates to 1 in 73 owner occupied homes.

The numbers for London are much higher than the national average. Hammersmith and Fulham topped the list, with over 1,600 applications, equivalent to 1 in 16 owner occupied homes. The next highest London borough was Kensington and Chelsea where 1 in 27 homeowners sought to extend, with Richmond upon Thames fifth in the list of all local authorities in England.

^{Source: Savills Research, DGLG}