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.