The challenges faced by the prime markets of late are reflected by the fact that the total value of housing stock in Kensington & Chelsea fell in 2015, though the loss of £693 million is dwarfed by the gains of £68 billion over the preceding 10 years.

Certainly the stamp duty changes introduced in the 2014 autumn Statement have had a bigger impact than many forecast, the effect initially being masked by the uncertainty in the run up to the General Election. But both the prime housing markets of London and the country have reacted relatively rationally to the changes.

Small price falls were recorded in the higher value markets where the stamp duty liability has increased. By contrast, in the lower value prime markets where there is now a tax saving, values have continued to rise, albeit at a slower rate than in 2014.

Transaction levels, though undoubtedly lower than in 2014, have not collapsed as some would argue. Figures from the Land Registry indicate a 5 to 10% fall above £1 million across England and Wales.

While this suggests there is still a market for appropriately priced stock, it also means we are unlikely to see cuts to rates of stamp duty at the top end.

Indeed, in the 2015 autumn Statement, more stamp duty changes were announced for buyers of “additional Homes” (second homes and buy-to-let) causing further small price falls in markets with high concentrations of such buyers in the last quarter of last year.

^{Source: Savills Research *Effective SDLT rate (from 1 April 2016)}

Market Cycle

To understand what lies ahead it is helpful to look back and identify what happened between 2002 and 2005 when the market was at a similar stage in the housing cycle.

In prime London, over the three-and-a-half year period from June 2002, prices increased by just 5%. Currently, average values have seen no net growth since the first quarter of 2014, so if the market follows a similar trend we would expect prime London values to remain broadly flat through 2016 and most of 2017.

Over the same period, prices in the prime country markets outperformed London with an average increase of 17%. We expect a similar trend this time round as the ripple effect takes hold and more equity flows to the housing markets beyond London.

_{Please look out for our forthcoming report Spotlight: Prime Country Residential Markets}