Liquid error: wrong number of arguments (2 for 1) London Prime Market Monitor - Q4 2012 | Marsh & Parsons Sales and Lettings Estate Agents London

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London Prime Market Monitor - Q4 2012

Tue 29 Jan 2013

  • Property price growth slowed to 1.3% in Q4
  • Equity-rich drives market as those trading up or down grow in number
  • Domestic sellers recycling wealth increasingly important to London's prime market

The growth in prime London property values slowed to nearly a third of the rate seen in the previous quarter as a mixture of uncertain government tax policies and a marginal increase in supply led to competition cooling in the final quarter.

Price growth slows as supply widens

Average values rose by 1.3% in the quarter, compared to a 3.5% rise in Q3 2012. Slower growth in prime central areas held back the average for prime London as a whole, with an increase of 0.8% compared to 2.7% in the previous quarter. The market has had to come to terms with a higher level of taxation and corporate buyers delaying decision- making over concerns of more punitive measures in Decembers draft Finance Bill. In prime London as a whole, annual price growth stood at 11.2% in the final quarter, as a result of more rapid growth earlier in the year. However, slowing quarterly growth in two successive quarters points to a steadier trend of property price inflation in 2013.

price growth

Supply & demand

The supply of properties hitting the market improved for a second quarter in a row. The number of properties available in the quarter increased by 3.6%, following a 2% increase in Q3 2012. However, despite the short-term improvement, the current level remains 7.1% lower than a year ago and 17.1% lower than in 2010.

Demand continues to steady, as buyer registration figures fell by 4.7% in the traditionally slower Christmas period.


During the quarter, the ratio of registered buyers per instruction dipped to 13.5 from 14.7 in the previous quarter. However, for 2012 as a whole, the average stood at 15.5, after buoyant activity in the early part of the year, higher than the average of 14.4 in 2011.

Its clear that the historically low level of property coming onto the market remains a drag on the overall number of sales taking place in prime London, and even a modest improvement in the quarter has had a tangible effect on price growth in the quieter winter months. However, as demand heats up again in spring, supply will need to increase further to prevent a stronger rise in property values by the end of March.

Equity-rich increasingly active

Current homeowners trading up or down are playing an increasingly prominent role in prime Londons housing market. 19.3% of all sales in the final quarter of 2012 were by those looking to trade up into bigger or more expensive homes the highest proportion since Q1 2011. This represents an increase from 17% a year ago and 14.5% in the previous quarter. Similarly, the number of buyers downsizing from existing properties increased to 6.6% from 4.9% a year ago, and from 3.6% two years ago.

Those who have owned homes for several years benefited from the rapid price growth in prime London. In spite of the sluggish performance in the wider UK market, prime London owners have seen their equity grow rapidly. As a result, we are seeing many owners cash in on capital gains, and either trade down to free up capital for other investments or pension provision, or use the increased capital to trade up into larger properties often in less central areas such as Balham, Battersea, Clapham or Barnes.

Those upsizing have also benefited from the current approach of lenders. Despite the introduction of the Funding for Lending Scheme, banks and building societies are channelling the cheapest funds towards less risky borrowers on lower loan-to-value mortgages. This means that those trading up after seeing the value of their present home soar in the last few years are able to deal with mortgage lenders from a position of financial strength and tap into cheaper finance to top up their buying budgets.

In contrast, the conditions on the ground for first-time buyers without large deposits remain tough, despite the landmark funding scheme. The proportion of purchases in the prime areas of London made by first-time buyers dropped by 3 percentage points between Q4 2011 and Q4 2012, with greater concentrations of new buyers in outer prime areas. There are signs of an increasing number of high LTV deals becoming available, but criteria is strict and lenders are still focussing their efforts on buyers with substantial deposits.

Growing influence of domestic buyers

Within prime central London, international buyers remain a key driving force of the market as they continue to favour traditionally prestigious postcodes such as those in the Royal Borough of Kensington and Chelsea. As a result, 52% of purchases in Chelsea were made by international buyers in 2012, while Kensington and Notting Hill saw 47% and 46% of purchases made by non-UK nationals respectively.

However, banks and building societies preference for providing wealthier borrowers with cheaper rates has had the side-effect of boosting the influence of domestic buyers across Londons wider prime market. After strong capital gains too, an increasing proportion of domestic residents are recycling their property wealth within the capital, especially in outer prime areas and those with lower house prices. For instance, in 2012, 89% of buyers in Balham were UK nationals, while Clapham saw 86%.

As a result of the growing significance of domestic buyers in many areas, 73% of all purchases were by domestic buyers in prime London in Q4 2012. This is compared to 71% in Q3 2012, 69% in Q2, and 67% in the first quarter of the year. In 2012 as a whole, 70% of prime buyers in London were UK nationals.

Gap between central and outer prime areas closes

The price gap between properties in prime central London and less traditional outer prime areas closed in the fourth quarter as price growth in the centre lagged 1.2% behind that in non-central locations.

This is the third quarter in a row that non-central prime areas have outperformed prime central London, and the premium that buyers must pay to live in prime central London has fallen to 45.1%, down from 45.8% in the previous quarter.


Million pound homes

The market for properties between 2m and 2.3m was subdued in the second half of the year as the market adjusted to the additional stamp duty tax announced in March. Investors and trusts postponed decisions until further tax changes for non-natural persons were outlined in the draft Finance Bill published in December. Despite this, the proportion of homes worth 2m or more climbed albeit steadily - to 18.8% in December from 18.5% in September, although properties marketed in the 2m 2.3m bracket are subject to far fiercer negotiations than at the start of 2012.

Now that the draft Finance Bill has been published, the removal of uncertainty should help this sector of the market stabilise somewhat and in the absence of further tax hikes, we are likely to see wealthy buyers at this threshold begin to absorb the new tax changes as an associated cost of moving.

In the last three months, the proportion of properties in prime areas of London worth 1m or more has seen faster growth, rising from 43% to 43.5%. However, this represents a gentler climb of 7.8% in the last year compared to the annual increase of 8.3% seen in Q3 2012.Prime central London still boasts the highest concentration of million pound homes, with 61.7% worth 1m or more.


Looking forward

A further improvement in the supply of property coming to the market has helped alleviate the strain on the number of homes for sale and slowed price growth in the short-term, especially in the traditionally quieter winter months. However, until interest rates are hiked by the Bank of England, the supply of available property wont return to anywhere like its pre-crunch level. This will help support prices in the early part of 2013. While demand steadied in the latter half of last year as the market absorbed the new stamp duty tax and concerns over yet more tax changes (such as a mansion tax), we now expect buyers will start to move on. As in 2012, we expect a strong spring and the majority of capital gains in 2013 to take place in the first half of the year. As a result, we forecast that price inflation will increase to around 2.5% in prime London next quarter, with an overall increase of approximately 4% by the end of the year.



The Prime Market Monitor uses a repeat valuation methodology that tracks values in a representative mix-adjusted basket of properties across prime London in the areas in which Marsh & Parsons operates. Prime central London comprises representative baskets of properties covering Chelsea, Kensington, Notting Hill, Holland Park and Pimlico. Prime London comprises all areas in prime central London, as well as areas such as Clapham, Balham, Battersea, Barnes, Little Venice and Brook Green. Historic data has been revised since the previous edition following the expansion and improvement of the basket of properties. Supply and demand statistics are based on an audit of Marsh & Parsons registrations and instructions during the quarter. Buyer profile information is taken from Marsh & Parsons quarterly MI data.

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