Savills News

Political uncertainty still putting brakes on UK prime housing markets

Average values across the prime London residential markets held their own in the second quarter of 2019 for the first time since the third quarter of 2015. 

While prices continued to show falls on an annual basis, these have reduced to just -1.8%, less than half the level seen this time last year.At the same time, average values across the prime regional markets nudged up 0.3% in the second quarter, resulting in a marginal -0.4% fall.  This has resulted in a further closing of the gap between prime London and the prime UK markets, with 5-year growth averaging 4.6% compared to -12.1% falls in the UK capital.

 

Prime London detail:

Quarterly price growth of +1.2% in the predominately domestic markets of prime south west London, from Fulham through to Wimbledon, means this part of the market, unlike others, is showing modest annual price growth. 

“This primarily reflects a shortage of stock, which has been particularly pronounced in this part of London,” says Lucian Cook, head of residential research at Savills.  “A third of our south west London agents tell us that a lack of stock is now the biggest constraint on their market, which has led to a narrowing of expectations between buyers and sellers.

“Across the prime London markets as a whole, we’ve seen the surprise return of competitive bidding and even a few sealed bids.  This results from relatively low stock levels and buyer commitment to securing the very best properties in a fragile marketplace.” 

In the quarter, 16% of Savills deals saw competitive bidding, with  56% of these resulting in sealed bids.  But while this is helping to underpin transactions, it is not leading to price inflation against the backdrop of increasing political uncertainty and still depends on pragmatic pricing by sellers, the firm says.

In the high profile, high value markets of prime central London prices fell by a further -0.9% in the quarter, resulting in year on year price falls of -3.6%, similar to the levels seen since the end of 2017.

This means that price falls across all prime central London value bands have now converged at around -20% below their peak of market 2014 levels.

“Traditionally that is an indicator that the market is close to full re-pricing,” says Cook.  “However, despite a currency play, which means that they are now 40% cheaper than in June of that year for a US dollar based buyer, prime central London remains highly price sensitive in the light of ongoing political uncertainty.

“Indeed, in a survey conducted in mid-June, 90% of our agents in central London named Brexit uncertainty as the single biggest challenge in this market, compared to a London average of 72%.”

Q2 2019

Prime Central London

Prime North West London

Prime South West London

Prime West London

Prime North and East London

Outer Prime London

All Prime London

Quarterly 

-0.9%

-0.7%

1.2%

0.4%

-0.4%

0.4%

0.0%

Annual

-3.6%

-3.7%

0.7%

-1.3%

-2.0%

-1.0%

-1.8%

Since 2014 peak

-20.2%

-11.6%

-7.8%

-9.9%

-8.2%

-8.3%

-12.1%

Source: Savills prime London index

 

Beyond London – the UK prime regional story

In the prime markets beyond the capital, prices showed marginal gains for the second quarter in succession, rising by an average of 0.3% and leaving prices just 0.4% below their figures a year ago.  All regions, except the inner commuter zone (within 30 mins of London) marginally outperformed prime London both over the past quarter and full year, with Scotland recording the strongest growth.

Values across the UK held their own across all price bands and major property types in the quarter, though over a 5 year period properties priced below £500,000 recorded 15.7% growth compared to -8.5% falls in the market above £2million.

“The traditional manor house is looking like incredibly good value in a historical context,” says Cook. “Values of these large country houses remain -15.8% below their 2007 level, whereas their townhouse counterpart is closer to 20% above that benchmark.”

Looking forward

“There are a number of indicators for sellers to be more optimistic.  But we face heightened uncertainty over what a new prime minister will mean for Brexit, the economy and, critically, tax policy, which suggests the prime markets will remain price sensitive across the remainder of 2019,” argues Cook.

“We have already seen stamp duty reform raised by Boris Johnson and his supporters. While it remains to be seen whether a compelling case can be made for cuts at the top end of the market from a tax revenue perspective, such a move now seems more likely than it did under the previous administration. 

“Sellers who hold out for a stamp duty cut to oil the market will need to weigh this against the risk of further disruption to the market that could result from a no-deal Brexit or the possibility of a higher tax environment in the event of a change of government.”

Q2 2019

All prime London

All UK prime regional

Suburbs

Inner commute

Outer commute

Wider South

Midlands and North

Scotland

Quarterly

0.0%

0.3%

0.7%

-0.6%

0.4%

0.6%

0.3%

0.6%

Annual

-1.8%

-0.4%

-0.1%

-2.4%

-0.3%

-0.7%

0.6%

2.0%

5 year

-12.1%

4.6%

-4.9%

3.9%

5.5%

7.1%

6.4%

5.7%

Source: Savills prime regional index

 

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