Average prices in London are continuing to grow strongly. All but four boroughs experienced double digit annual price increases according to the latest Land Registry data published (up to May 2015). The lowest annual change in price growth was recorded in Kensington and Chelsea (4.4%) and Westminster (6.4%) among all London boroughs (10.9%). Higher taxes levied, interfering most with the top end property market (stamp duty, capital gains and ATED), along with concern over the election, has undoubtedly been the main reason behind prime London slowing down.
The majority Conservative government means that no mansion tax or major reform of the lettings market will be implemented. Their handling and plan for the economy is also potentially the most conducive to economic growth. There were expectations of a marked increase in demand after the election; however, this has not been the case, although an Autumn pick-up is now anticipated. The higher taxes, consistent price growth seen over the last five years, as well as more stringent lending restrictions, have all affected demand. This is a permanent trend and will likely prevent the prime boroughs returning to double digit growth for a while. These are natural economic suppressors on demand and potentially healthy in helping the market slow down to avoid unsustainable price inflation.
For the first time since the financial crisis, we are seeing outer boroughs of London outperform prime central areas as a consistent trend. Pure equity (cash funding), resilience to economic troubles and better sentiment among centrally orientated buyers, particularly from abroad, saw strong demand fuel price growth in London’s prime boroughs. However we now see that the comparative value in peripheral markets coupled with a resurgence in domestic demand has fuelled these non-central boroughs to rise disproportionally.
Looking forward, better economic performance (with consumer and business sentiment increasing, rising real earnings and low interest rates) will raise activity both among borrowers and lenders, spurring more transactions in the market. Market commentators are estimating prime central prices to rise approximately 20-25% to the end of 2019, therefore continued growth is predicted (although not as in the last few years when this would have occurred in just 12 months). Having just overcome a major degree of uncertainty among buyers and sellers, we will now see the EU membership referendum (potentially having significant implications for London) and mayoral elections influencing on demand over the next two years. However the UK and housing market’s economic fundamentals remain strong, paving the way for continued growth.
Source: Land Registry/Frank Harris Research
Rental growth is being recorded by all major price indices. Supply and demand has been affected by the election, with some postponing a decision to let and some sales applicants deciding to rent for the interim. The RICS reports that in a three month period up until May, both rental demand and new instructions increased with price expectations positive going forward. Supply has been reported to have risen steadily for the last three years, potentially slowing price growth but more positively allowing for increased activity. Looking at the drivers of demand, one major aspect – employment in the service sector, in particular the finance sector, is improving. Rental yields have risen slightly, with capital growth in central London slowing.