London Property Monitor - Q1 2013
Thu 25 Apr 2013
- House price inflation picked up pace in Q1 2013, with Prime London property values increasing by a substantial 12.8% from the previous year
- 46% of homes in Prime London now worth 1m, up by 9% from 2012 (37%)
- Prime London as a whole outpaces Prime Central London as supply shortage and rising house prices pushes buyers into Non-Central Prime London
Substantial house price growth
Average values rose by 3.6% in the quarter, compared to a 2.2% rise in Q1 2012. Growth in Prime Central London was slower than Prime London as a whole, with an increase of 2% compared to 2.4% in Q1 2012. This could be an effect of increased taxation on higher value properties a larger volume of which fall within Prime Central London areas including the introduction of a 7% stamp duty for properties over 2 million, rising to 15% if purchased through a company.
Prime London annual price growth stood at 12.8% in the first quarter. Prime London has now experienced consistently higher quarterly growth than Prime Central London for the past three quarters, as the ongoing supply shortage fails to satisfy demand.
In terms of property types, the largest quarterly growth was a 5% lift in the value of an average two-bedroom home in Prime London. The lowest quarterly growth recorded was just 1% for the average growth in value of both three and four-bedroom properties in Prime Central London. As the average value of these properties currently stands above the 2 million mark, this could reflect a decreased demand for properties in this price range as potential buyers have tried to avoid the increased stamp duty.
Supply versus Demand
During the last quarter, the ratio of registered buyers per instruction recovered to 15.2, from a dip at the end of last year of just 13.5.
The historically low level of property coming onto the market remains a hindrance to the overall number of sales taking place in London. Some relaxation in lending as a result of the Governments Funding for Lending scheme, along with increased confidence in the market, has resulted in an increase in the number of UK and first-time buyers on the market.
Growing influence ofdomestic buyers
There has been a steady decrease in the number of overseas buyers operating in Prime Central London during the past year, from 28% in the first quarter of 2012 to 22% in the first quarter of this year.
While foreign investment in the London property market remains a key source of demand for prime property, this gap has partly been filled by foreign national buyers who also reside in the UK. The ongoing Eurozone crisis continues to encourage foreign investment in the relative safe haven of the London property market.
Aided by the Governments Funding for Lending scheme, conditions on the ground for many first-time buyers have improved, with this segment taking an increasing share of the purchasing activity over the last quarter. In Prime London, the percentage of first-time buyers has grown by 0.5% since the last quarter, and by 4% from the same quarter last year. In Prime Central London, the proportion of first-time buyers increased by 9% from the previous quarter.
Trading up activity rises
The volume of those trading up in Prime Central London has increased significantly, demonstrating buoyancy in the market fuelled by the current approach of lenders. Despite the introduction of the Funding for Lending Scheme in August 2012, many banks and building societies channelled the cheapest funds towards less risky borrowers on lower loan-to-value mortgages, meaning that those trading up have been in a better position to deal with mortgage lenders and access the necessary funds to move up the property ladder. The percentage of those trading up in Prime Central London has increased by 25% during the past year. In Prime London, this has remained at the same level (18%) as the year before.
Mortgage buyers on the increase
Overall there has been a steady decrease of cash buyers and an increase in the number of mortgage buyers across all parts of Prime London. The percentage of mortgage buyers in Prime London has increased by 10% from the previous year. This growth has been most noticeable in areas of Prime Central London, where the proportion of mortgage buyers has leapt up by 34% in the last quarter an increase of 7% from the previous year. This upwards trend continues to suggest that lending as a result of the Funding for Lending scheme is helping more buyers in the middle or higher ends of the market, than riskier first-time buyers seeking higher loan-to-value mortgages.
Investors look further afield
The focus for investors appears to be shifting from Prime Central London to Non-Central Prime London. The proportion of investor activity in Prime Central London has decreased steadily for three successive quarters from 36% in Q2 2012 down to just 7% in the past quarter. Meanwhile, investor activity in Prime London as a whole is moving upwards, lifting from 17% to 25% in the past quarter. This could be a result of the lack of supply in Prime Central London pushing investors further afield.
A Power Shift from Prime Central?
The premium being paid for Prime Central London versus Prime London as a whole has fallen for the fourth quarter in a row.
While the value of properties in Prime Central London continues to far exceed those in Prime London, it is Non-Central Prime London which has experienced the most rapid price growth over both the past quarter and year. The value of property in Prime London overall has increased by 12.8% in the past year, as a shortage of supply in Prime Central London continues to push would-be buyers further afield.
Million pound homes
In March 2012, 54% of the Prime London properties worth 1m were located in Prime Central London locations. This figure has now fallen to 50% as a result of the buoyancy of Non-Central Prime London areas.
Despite the introduction of the 7% stamp duty tax, the number of properties worth 2m or more has continued to increase. Currently, 19.3% of all homes in Prime London are worth 2m or more, up from 18.8% in December 2012 and 15.9% in March 2012.
London has many pull factors that appeal to foreign investors across the globe and its housing market is set to remain a power house supporting growth in the UK on a national level. The Governments recent Budget plans are a welcome stimulus to the housing market. Over the next twelve months as the Funding for Lending scheme winds down, the impact of the Governments new Help to Buy scheme is expected to drive the rate of growth in the market significantly and boost activity. It is also set to enhance the options for first-time buyers searching for small properties in Prime London worth up to 600,000, allowing them to fund a 5% deposit on a new home. The government will fund up to 20% of the cost of a home by means of a five-year interest-free shared equity loan, to be paid back when the house is sold, with the remainder of the purchase price funded with a standard mortgage.
While the bad weather in March may have stifled some activity on the market, a delayed Spring bounce is expected to take place over the coming months. This anticipated gradual pick-up will help reinforce the housing markets underlying strength.
The Prime Market Monitor uses a repeat valuation methodology that tracks values in a robust 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. Non-Central Prime London comprises outer areas such as Clapham, Balham, Battersea, Barnes, Pimlico, Little Venice, Fulham and Brook Green. Prime London is used to describe all these areas combined including Prime Central London and Non-Central Prime London.
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. Lending data is taken from the latest CML statistics available.