Research article

Location by Location: United Kingdom

Prime London property is regarded as a safe haven for investors.

The UK is in a phase of sustained economic recovery. Unemployment continues to fall (it is among the lowest in the EU) and in 2014 GDP grew by its fastest rate since 2007. Low interest rates, coupled with a national shortage of new homes have fuelled price rises, particularly in London and the south east of the country.

The prime residential UK market was one of two halves in 2014. The improving economy and positive sentiment from the mainstream market helped drive demand in the first half of the year. An average price increase of 4.9% was recorded in the prime markets of London and 3.1% outside the capital. But momentum was lost over the summer and prices remained flat in the final six months of 2014, with small falls in prime London. Much of this was down to changes to the stamp duty regime and uncertainty ahead of the UK general election.

With the UK general election now passed, greater political certainty has gone some way to restore the fundamentals of demand in the prime markets – underpinned by a low interest rate environment and growing domestic and international wealth generation. Buyers and sellers who had adopted a 'wait and see approach' are active again, secure in the knowledge that a ‘mansion tax’ is off the table, but the market has not seen a marked bounce-back. Prime London property has emerged from a prolonged bull run and now looks fully priced and fully taxed. As a consequence the medium term outlook remains muted.

The mainstream markets meanwhile have been impacted by regulation on mortgage lending, but low interest rates coupled with a fundamental lack of supply across much of the country means that prices have maintained an upward trajectory.

Figure 19

FIGURE 19UK market performance (2006 – 2015)

Source: Land Registry


The safe haven credentials of London real estate are well rehearsed. Politically stable, offering security of tenure and an advantageous time zone, London is a cosmopolitan city with global appeal. Investors have long been attracted to the best residential and commercial assets, with an eye to capital growth and/or the storage of wealth. But London is first and foremost a centre of global business, and over 85% of prime buyers live and work in London, even if many of them originate from overseas.

London’s prime markets outperformed those of the rest of the country in the years following the global financial crisis. But by the second half of 2014 and into 2015, prime markets were slowed by changes to stamp duty and pre election uncertainty, which resulted in a lack of urgency among buyers.

Prime central London housing markets, including areas such as Mayfair, Knightsbridge and Kensington, were particularly impacted by the increased stamp duty charges and the threat of mansion tax, and sellers had to factor in price adjustments accordingly. Values here were down 4.3% in the year to June 2015.

Opportunity lies in emerging prime markets, particularly those influenced by London’s tech sector. Clerkenwell and Spitalfields in east London, for example, are benefiting from the expansion of tech and in turn demand from occupiers seeking homes within walking distance of their workplace.

Turning to the mainstream markets, price growth of 14.9% was recorded in 2014. Some 10.6% of this growth came in the first six months of 2014 alone, according to Land Registry data. The latter part of the year saw a cooling of the market, a trend which has continued into 2015. London’s mainstream markets will have to bear the burden of ongoing mortgage market regulation, coupled with the prospect of interest rate rises in the medium term. This will impact affordability. Investors may take heed in London’s mainstream rental markets, which will continue to benefit from a strong occupier demand.

Prime London property is regarded as a safe haven

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