Prime London House Prices Dip in Face of Volatile Sentiment

Just over year on from the Brexit vote, prime London house prices have continued to soften, recording small falls both in central and outer prime locations over the past quarter, according to latest analysis from international property adviser, Savills.

Average prime London values slipped 0.9 per cent in the second quarter, leaving them 5.3 per cent down year on year and 6.9 per cent from their mid 2014 peak, according to the Savills quarterly prime London index.

Ten years on from the credit crunch, this puts total gains at almost 30 per cent, albeit this is down from the mid 2014 peak of the market, when post 2007 gains stood at 37 per cent.

“Ahead of the vote to leave the EU, there were signs of a market bottoming following the adjustment triggered by the December 2014 stamp duty reform, and some locations had started to show price growth, but increased political and economic uncertainty has weakened fragile buyer sentiment,” says Lucian Cook, head of residential research at Savills.

As with the stamp duty effect, post referendum uncertainty is particularly impacting the most expensive and discretionary parts of the central London market.

Average prices in prime central London fell 1.3 per cent in the past three months, to leave them down 6.8 per cent year on year and 14.4 from peak.  This leaves 10 year price growth in the UK capital's most expensive central postcodes below the prime London average, at 23.4 per cent.

Locations with a high proportion of buyers from the financial sector, whether domestic or European, such as Kensington and Notting Hill, Canary Wharf and parts of south and west London, have also seen small falls in the face of increased buyer caution.  These include locations that have seen the largest post downturn gains.  Prices in the prime south west and north east markets are still 35 per cent up on their 2007 level.

Savills forecasts, published in November 2016, anticipated that prime London values would fluctuate this year, but end on zero growth across the full year.  Increased levels of political and economic uncertainty make it less likely that year to date losses, which the firm puts at an average of -1.2 per cent across prime London as a whole and -2.1 per cent in prime central London, will be recovered in the short term.

“Where vendors have realistic price expectations, which reflect these falls, sales are proceeding,” says Cook.  “But there is a lack of urgency in the market and vendors who need to sell may need to adjust their expectations further.

“It has been widely reported that the currency advantage is leading to an uptick in dollar denominated and international buyer activity.  In our experience, the currency play is helping to underpin sales, by partially offsetting high stamp duty costs, but buyers still need the reassurance that they are buying the right property at the right price.

“Stamp duty reform has reduced speculative buying, with the market now much more the preserve of needs-based buyers.  However, prime London continues to be considered a relatively secure investment asset in a global context and this too is underpinning buying decisions for those taking a mid to long term view.”