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London Property Monitor - Q3 2013

Mon 04 Nov 2013

  • Over 50% of all Prime London homes are now worth 1m or more - up by 8% compared to a year ago and up by 6% since January 2013
  • Growth in Prime Central London is now outpacing all Prime London for the first time in five quarters. Quarterly growth in all Prime London has slowed down while Prime Central London growth has stabilised
  • Still 18 buyers registered per property, but increased demand in the last quarter has been met with increased supply
  • One-bedroom properties in all Prime London are currently appreciating at the fastest rate - they are on average over 60,000 more expensive than a year ago, having risen by 14% in twelve months

Prices Continue to Rise

Property values have continued to climb in all Prime London, with average prices increasing by 10.3% over the past year. The average price of Prime Central London property now stands at over 2m, following an 8.2% annual rise, with the average property in this area now costing 2,040,387. Demand in Prime London overall remains high from both domestic and overseas buyers, which continues to contribute to rising prices.

The main development in the last quarter has been the shift in power back from Prime London to Prime Central London. For the past five quarters, it has been the outer areas of Prime London, where property prices are slightly lower, which has experienced the fastest rate of growth. But in this quarter, for the first time in several years, the more expensive areas of Prime Central London have outpaced Prime London as a whole. In the last quarter, the average price of a property in Prime Central London increased by 1.71%, while the average price of property in Prime London as a whole appreciated by 1.6%. Property in all Prime Central London continues to offer the potential for very strong capital gains, which creates fierce competition for the best properties particularly during periods of low supply.

Million Pound Homes

table two

More than half of all Prime London properties now cost more than 1m. There are 6% more properties in Prime London costing over 1m compared to January 2013 and 8% more compared to a year ago. The number of sales and volume of applicants has risen between the 1m and 2m market, where buyers are exempt from the increased stamp duty.

The 7% stamp duty on properties over 2 million continues to affect this part of the market. In addition, political discussions around the potential introduction of a mansion tax continue, and this air of ambiguity has made some higher-end buyers cautious. Yet despite the high level of taxation, the volume of properties worth 2m or more has continued to increase. In total, 22% of properties in all Prime London are worth over 2m up 3% compared to a year ago.

Property Type

table three

When comparing the performance of different sizes of property, the most rapid growth increases in the last quarter were recorded among one-bedroom properties in all Prime London. One-bedroom properties appreciated by 6% during the last quarter, reflecting an increase of 29,140 in three months. The annual rate of growth for this property type was 14% - equating to an increase in value of 62,063. One-bedroom properties in Prime London naturally appeal to first-time buyers who are flocking to the market thanks to the increased availability of mortgages, low interest rates and the impact of the Help to Buy scheme. One-bedroom properties are also very popular among buy-to-let investors, as demand for high-quality one-bedroom properties in the rental market is very strong, resulting in very respectable rental yields.

Across London as a whole, the premium being paid for property in Prime Central London, over all Prime London areas, has risen to 43%, having increased by 0.2% in the last quarter. This represents the first growth since Q1 2012 and reflects the renewed source of demand for properties located in the most exclusive parts of London.

Supply versus Demand

table four

The number of registered buyers has continued to increase in the past quarter, with 6% more than were recorded in Q2 2013. However, unlike in previous quarters, this increase has been matched by a 5% increase in the supply of available properties coming to the market. While the volume of supply remains historically low 17% fewer properties are available than the same time last year the ratio of supply to demand is beginning to stabilise, as shown in the next graph.

After a long period of low supply, government initiatives and low interest rates seem to be finally encouraging sellers to put their property onto the market. Latest data from the Bank of England shows that first-time buyers are now at their highest level since before the financial crisis. In particular, we may also find that the Help to Buy initiative encourages many first-time sellers to put their properties on the market in order to take their next step up the property ladder, which will help to ease volumes of supply for the many first-time buyers hoping to make a purchase.

The lettings market

Rental prices have remained largely static, particularly in Prime Central London, with purely incremental rises in rental rates over the past quarter. It is inevitable that tenants place greater importance on affordable accommodation in the face of slow salary growth and the rising cost of living: the effects of which have been felt on the rental market. Rental yields are highest among one-bedroom properties across all Prime London, in response to a growing number of tenants who seem to be adopting European attitudes to long-term renting, rather than saving up in order to purchase property.

Increase in investor activity

Prime Central London continues to be seen as a key investment opportunity for both UK and overseas buyers. The volume of investors operating in Prime London has increased compared to the last year. In Q3 2013, 29% of all purchases made were by investors an increase of 1% from the previous year and the same number as the previous quarter. In addition, there has also been an increase in the proportion of buyers purchasing an additional residence in Prime Central London. In Q2 2013, 12% of purchases were bought as an additional residence in Q3 2013 this figure increased to 18%.

In Prime Central London, investors continue to dominate, representing 38.5% of all purchases in this area the largest slice of buying power in this area to date. The enduring appeal of Prime Central London property, together with its potential to retain wealth and secure generous capital gains during continued worldwide economic uncertainty, secures its long-term appeal for both overseas and UK investors.

UK and overseas buyers

Prime London has seen a marked increase in the volume of domestic buyers. There has been a decrease in the volume of overseas and foreign nationalities buying in Prime London during the past quarter, reversing the trend seen in the previous quarter. Overseas and foreign nationalities made up just 28% of the purchases in all Prime London in Q3 2013 a reduction of 5% from 33% in the previous quarter. This trend also stands true in Prime Central London, where the proportion of property purchases by overseas and foreign nationalities reduced from 46% in Q2 2013 to 35% in the last quarter.

However, these trends vary from area to area. In Notting Hill, Holland Park and North Kensington, around half of Marsh & Parsons business is generated through overseas money. The most prevalent buyers in these areas are cash buyers from France and Italy.

The mortgage market

There has been a significant increase in the volume of mortgage buyers operating in both Prime and Prime Central London during the past quarter. In all Prime London, mortgage buyers made up 55% of purchases in Q2 2013, and 63% in Q3 2013 - an increase of 8% in the last quarter. In Prime Central London, this group made up 43% of purchases in Q2 2013, and 54% in Q3 2013 - an increase of 11% in the last quarter.

Even in the more expensive parts of the capital, the improved availability of mortgages is helping to drive property purchases. Historically low interest rates are making mortgage payments more affordable and encouraging people to buy. The latest data from the Bank of England shows that mortgage approvals in July 2013 were almost a third (30%) higher than a year earlier. Conditions for first-time buyers in particular have improved significantly in the last quarter, purchases by this group were at their highest level since before the financial crisis.

However, these increases must be put into context. Compared to historic standards, the number of mortgage approvals is still low in July 2013, approvals were 53% lower than at the market peak of November 2006. In addition, gross mortgage lending was 17.6 billion lower in July 2013 than it was in November 2006.

Looking Forward...

table fiveWhile some commentators have raised concern about the Governments Help to Buy initiative, we anticipate that the scheme may actually stabilise property prices by encouraging first-time sellers to put their properties on the market and take their next step up the ladder. For the past three quarters, a lack of available property has created a premium for those on the market, but the gradual increase in supply, which we are now beginning to see, combined with the wide volume of property development taking place, may start to initiate more 'normal' market conditions.


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 main 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, 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 taken from Marsh & Parsons quarterly MI data. Lending data is taken from the latest CML statistics available.


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