London Property Monitor - Q4 2013
Thu 30 Jan 2014
- Supply and demand ratio remains out of balance: during Q4 2013, 11% more buyers entered the market in competition for 20% fewer properties
- One-bedroom properties in Outer Prime London increased in value by 21% during the past year - an increase in value of 81,318
- More than half (52%) of all Prime London property is now worth over 1m. But increased taxation on properties worth over 2m is slowing down growth at this level
Prices Continue to Rise
Property prices in all Prime London areas have continued to increase substantially, with prices climbing by 12.3% over the last year. The average price of property in Prime London now stands at 1,477,688 following a 3% quarterly increase during Q4 2013.
In Prime Central London, the average price of property stands at over 2 million, following a 10% annual rise. Demand remains high across all Prime London, with scores of both UK and overseas buyers at all levels of the market contributing to rising prices.
But in the last quarter, the most dramatic price increases have been in areas of Outer Prime London, where a 15% annual change has been recorded. Outer Prime London outpaced Prime Central London by 50% during 2013. The top five Outer Prime hotspots, where the highest levels of growth were recorded during Q4 2013, were Barnes, Balham, Clapham, Fulham and Battersea. These areas are all favoured by UK buyers for their community feel and village atmospheres and the slightly lower property prices in these areas also make them popular with those who may have been priced out of more central areas.
Million Pound Homes
Over half (52%) of all Prime London properties now cost more than 1m. There are 2% more properties in Prime London costing over 1m compared to September 2013, and 9% more than a year ago. The volume of 1m homes has also increased more rapidly in Outer Prime London (with 9% more 1m+ properties than the previous year), than in Prime Central London (7% more 1m+ properties).
Looking at the 2m+ market, the rate of growth has been slower, having been impacted by higher levels of stamp duty. The number of properties in this price bracket across all Prime London has increased by just 3% during the past year and the slower rate of growth at this section of the market also suggests that higher-end buyers may be feeling cautious in light of the ongoing political discussions around a potential mansion tax.
In terms of a breakdown by size, the properties with the fastest annual growth were one-bedroom properties in Outer Prime London. These appreciated by 21% in a year equating to an increase of 81,318. Following close behind, two-bedroom properties in Outer Prime London appreciated by 17%, equivalent to 98,214 in value. Demand for one- and two-bedroom properties is obviously high among first-time buyers who are being helped onto the first rungs of the property ladder by increased mortgage availability, low interest rates, parental help and the Governments Help to Buy scheme.
Meanwhile the premium being paid for property in Prime Central London, compared to all Prime London, has decreased by 3% from the same time last year, shown in the graph below. This reflects greater levels of demand in areas of Outer Prime London, where prices increased at a faster rate than in the most exclusive, central areas. However, the third quarter of 2013 saw prices in Prime Central London surge ahead once more, and we expect this trend to continue in the first half of 2014.
Supply versus Demand
Londons rising population, together with a combination of low interest rates and competitive mortgage finance, has created a surge of potential buyers but the supply of housing stock remains subdued.
During Q4 2013, 11% more buyers entered the market in competition for 20% fewer properties, creating high competition and tough bidding for the most desirable properties. In the three months to December, there were 19 buyers on our books competing for each available property, and our figures for January show that this has now increased even further to 23 buyers per property. Properties are changing hands in record time, with a large proportion of offers for the full asking price or over. We are also seeing the continuing use of best and final offers being used as a tactic for securing the best possible price for sellers.
The lettings market
Rental rates in all Prime London have remained relatively static over the past year, but in the past quarter, Prime Central London came back into its stride, with a steady annual growth of 2%. The improved economic mood has eased anxiety among city firms who are starting to hire once more and as a result, the corporate lettings sector is flourishing. Some of the largest increases in rental rates have been the two-bedroom properties in central areas such as Kensington & Chelsea, which are popular locations for city workers and foreign nationals living and working in London.
Prospective buy-to-let investors are also drawn to spacious one-bedroom properties in Prime London, which provide consistently strong rental yields and their exceptional capital growth makes a powerful case for those in search of a long-term investment.
The mortgage market
Buoyed by Government support, there has been a marked increase in the volume of mortgage buyers during the past 12 months. In all Prime London, mortgage buyers made up 63% of purchases in Q4 2013 an increase of 21% in the last year. In Prime Central London, mortgage buyers made up 54% of purchases in Q4 2013.
Government interventions in the mortgage market have fuelled property purchases over the course of 2013, encouraging people to move with affordable mortgage payments and low deposits. The latest data from the Bank of England revealed that mortgage lending up to November 2013 had surged to its highest level since the financial crisis. However,these gains must be put into an historic context. According to HMRC figures, the number of UK residential transactions in 2013 (1,071,220) is still considerably below the market peak of 2006 (1,667,890). In addition, recent CML statistics show that gross mortgage lending in 2013 still remains 51% lower than it was in 2007.
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.
Rise in first-time buyers
First-time buyer access to the property market has improved greatly in the past quarter, both Prime and Prime Central London have seen a significant rise in the volume of purchases by this group. First-time buyers made up the highest proportion of property purchases in all Prime London in Q4 2013 at 39% - an increase of 12% from 27% in the previous quarter. This group includes large numbers of foreign nationals living and working in London who have now decided to put down roots and buy.
Revived demand at the entry level of the market is propelling house price growth forward, and injecting potential sellers with the required confidence to move and trade up. Such positive sentiment at the entry level of the market will ripple out to other segments and is likely to encourage fluidity at all levels.
Investors and overseas buyers
Offering the potential for substantial capital gains, property in all Prime London continues to be seen as an attractive investment opportunity for both UK and overseas buyers, and the volume of investors has increased over the last year. In Q4 2013, 26% of all purchases in Prime London were made by investors a rise of 9% compared to the previous year. In Prime Central London, investors represented a third (33%) of all purchases made in the last quarter a 13% increase on the previous year. The group is largely represented by family or pension investors, very often buying with their childrens future in mind, as opposed to the more traditional landlord investor.
The enhanced Capital Gains Tax for overseas buyers announced in last years Autumn Statement runs the risk of denting inward investment to the UK, and blemishing the UKs reputation as being open for international business. However, with the proportion of property purchases made by overseas and foreign nationalities in all Prime London remaining steady in Q4 2013, these measures are yet to have any dramatic effect.
London property prices will continue to dwarf those in the rest of the UK over the next year, but the rate of growth will stabilise when compared to 2013 figures. With ongoing support from Government initiatives, the rate of growth will remain sustainable.
As unemployment levels fall, we are likely to see modest increases in interest rates in the year ahead. But the Bank of England is already indicating that any interest rate rises are likely to be far off. With the 2015 general election on the horizon, any changes that do come into effect are likely to be modest and will avoid creating shockwaves through the mortgage market.
The Prime Market Monitor uses a repeat valuation methodology that tracks values in a robust mix-adjusted basket of properties across all 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. Outer 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.