House prices in prime London areas remain resilient

Prices remained resilient in prime central London in 2016 despite sales falling, suggesting most homeowners have opted to hold onto their properties rather than sell in a softer market.

According to London Central Portfolio, sales in prime central London fell 21% in 2016.

The percentage fall in transactions was significantly greater following the 3% increase in stamp duty on second homes in April.

It is estimated that over 25% of all 2016 sales took place in March, whilst half of all sales for the year took place during the first three months.

Despite this highly reduced level of activity average prices have increased. According to LCP’s analysis, Land Registry demonstrates a 4.5% price increase to October 2016 and Lonres reports a 1.3% increase across the year.

Falls in transactions were less marked within in inner prime areas, down an average of 9% to October 2016. Prices over the same period in these areas also increased 1.6%. The suppression of price growth appears to be related to the new build sector. With new builds excluded, prices increased on average 5.0%.

A particularly strong performance was seen within the more up and coming areas, which remained attractive to potential buyers with lower average prices, future growth potential and a reduced tax liability compared with the more luxury postcodes.

Marylebone, Fitzrovia and Soho put in the strongest performance, showing a 19.7% uplift in price over 2015. Price increases were also recorded for PCL’s other lower value areas, such as Notting Hill & Bayswater (11%), Pimlico (2.9%) and Westminster (2.6%).

The picture was far less positive where prices average over £2 million. Three successive stamp duty increases since 2012 have resulted in a rise from 5% to 15% for some purchases.

Chelsea was hardest hit, reflecting a 12.2% fall in average prices and a 28.5% fall in sales volumes. Falls in prices were also seen in Kensington and St James’s Park & Mayfair.

Naomi Heaton, CEO of LCP, said: “Despite the series of new taxes impacting the market and uncertainty due to Brexit, the more up and coming areas of the market have remained attractive to buyers, particularly foreign investors, looking for good value in the face of weakening sterling.

“It is clear that in the current market, London’s centre of gravity has shifted from the traditional, luxury enclaves to the areas with lower entry prices, future growth and gentrification potential – and where tax increases have been far less painful. Stock in these areas also tends to be made up of small flats which are commercially rented. If buyers are unable to achieve their price expectations, they will generally hold and rent their asset, supporting prices.

“Contrary to this dynamic, LCP’s new analysis demonstrates the price correction which has taken place for the more traditional, luxury areas of PCL. Unlike the lower values areas, these markets have been hit harder by the succession of new taxes. Historically, they witness more volatility in periods of political and economic turmoil.”

House price changes for prime property in London

Land Registry Price Paid Data (Jan – Oct 2016 vs Jan – Oct 2015)