London Property Monitor - Q2 2014
Mon 21 Jul 2014
- Pace of house price growth slows as market stabilises, with quarterly growth cooling to 3.1% in Q2 2014 - down from 4.3% in the previous quarter
- Increasing supply of Prime London property and easing demand is reducing competition. Number of buyers per property has fallen from 24 in January to 16 in June
- Investors account for nearly a third of all Prime London purchases made during Q2 2014, representing the greatest proportion of buyers and the highest level on record
House price growth steadies this quarter
After a frenetic start to 2014, the pace of house price growth has slowed this quarter as the market stabilises and returns to more normal trading conditions.
The average price of Prime London property now stands at 1,589,720 after 3.1% growth during Q2 2014, down from a 4.3% quarterly increase in Q1. In Prime Central London, quarterly growth has almost halved to 2.1% in the three months to June 2014, down from 4.0% in previous quarter.
Over the course of Q2 2014, monthly price growth in Prime London has cooled, dropping from 1.8% in April to just 0.4% in June. House price rises are steadying as the market takes its natural course, following an overall 12.6% uplift in property prices in Prime London over the past year.
As prices have climbed in central parts of the city, buyers have turned their attention further afield to the more affordable urban villages of Outer Prime London. Enjoying renewed popularity among young families and first-time buyers, Outer Prime London continues to outpace central areas with the fastest rate of house price growth. Property values here have risen 15.3% over the past year compared to 10.5% annual growth in Prime Central London. Clapham, Brook Green and Balham are the Outer Prime London hotspots, all witnessing annual price growth of over 20%. In contrast, properties in Prime Central areas of Chelsea and Holland Park have risen in value by just 7-8% over the past twelve months. To put this into perspective, Brook Green house prices have increased by 7.9% in the three months to June alone.
As a result of this trend, the premium being paid for Prime Central London property, compared to all Prime London has fallen in the last quarter to 41% - a new record low. This is down from a 44% price premium for property in Prime Central areas of the capital in Q2 2013, and 47% in Q2 2012.
Property type breakdown
In Prime London certain property types have raced ahead in terms of annual growth. Leading the way, one-bedroom properties in Outer Prime London have seen the fastest annual growth, rising in value by over a quarter (28%) in a year equivalent to 116,622. Three-bedroom properties in Outer Prime London increased at the second-fastest rate to 22% - equivalent to 64,285 a year. This reflects the interest in Outer Prime areas from families looking to settle, most significantly in areas such as Clapham and Balham, which have seen annual growth of 24% and 21% respectively.
Million pound homes
Across Prime London, over half (55%) of all property is now valued at 1m or more. This follows a 2% rise in the number of million pound homes in Prime London compared to the last quarter, and a 7% year-on-year increase. In the more exclusive postcodes of Prime Central London, over two thirds (70%) of all property is now worth more than 1m. However, the number of homes commanding a million pound price tag has grown at a faster pace in Outer Prime London, up by 9% in the past twelve months, compared to a 5% annual rise in Prime Central London.
At the highest tiers of the market, were seeing slower growth. In the past year, the proportion of Prime London properties worth 2m or more has risen by only 2%, to just under a quarter (24%). And in the very top price bracket, this annual rate of price growth halves to just a 1% increase in 3m+ homes across all Prime London. At these rungs of the property ladder, the heftier stamp duty burden and ever-present threat of a potential mansion tax continues to moderate demand among higher-end buyers.
Supply versus Demand
Since Q1 2014, the supply of London Prime property has risen by 25.6%, paired with a quarterly drop in demand of 2.4% and directly attributable to the slowdown in property price growth. Compared to the same point last year, there has been a 5.6% increase in demand, and a 10.2% increase in the supply of properties.
The number of registered buyers per property in Prime London overall, has decreased month on month, from 19 in April, to 18 in May, down to 16 in June. As a result, buyers are being given a bit more breathing space, both in terms of property choice and price. This is in contrast to the beginning of the year, where buyers per property stood at 24 in January, decreasing to 20 in March, as market conditions normalise and competition for properties calms.
Even so, the demand for properties across the capital remains high and consistent across the board. During Q2 2014 there was an average of 17 registered buyers per property in Prime London and this ratio was true across all of Prime London.
The lettings market
After a fairly static period in the lettings market over the past year, rental rates are starting to pick up. Prime London rents rose by 2.4% in the last quarter, and by 2.8% in Prime Central London. Demand for rental property in the most desirable, central areas of the city has risen and rents in Prime Central London are up 4.3% year-on-year. The average weekly rent across all Prime London now stands at 610.26 a week, and 697.51 in Prime Central London.
The largest rental increases have been for four-bedroom properties in Prime Central London, which are up 7.1% since Q1 2014. Chelsea continues to top the lettings chart with an average four-bed rental value of 1,850 per week.
UK and overseas buyers
In a change of direction, a resurgence of UK buyers, due to initiatives such as Help to Buy, enabled a new stream of first-time buyers to climb onto the property ladder. The boosted demand at the entry level of the market has unlocked activity and confidence higher up the chain, and homeowners have become emboldened to make their next onward purchase. There has been a 2% quarterly rise in people trading up and making their next move up the ladder. This group now accounts for 22% of all purchases across Prime London.
Furthermore, the number of overseas and foreign nationality buyers across all Prime London is witnessing a decline. Just 21% of all purchases throughout Q2 2014 were made by overseas or foreign nationality buyers, falling from 33% in Q2 2013 to the lowest recorded level.
Cash buyers and investors
Prime London property has always commanded international allure to overseas investors. The desirability of the most exclusive London addresses has offered unparalleled gold-standard investment and capital gains. The staggering growth weve seen in the early months of this year has only strengthened this appeal further, as Prime London property becomes akin to a global reserve currency. And its not just overseas investors seizing the opportunity. With pension pots no longer chained to annuities, the landscape has opened up a new wave of buy-to-let pension investors looking to secure a comfortable retirement, or help family members onto the property ladder.
Investors now make up the biggest proportion of purchases across all Prime London in Q2 2014, accounting for nearly a third of all purchases (31%). This has increased from 26% in Q1 2014, to the highest level recorded. In Prime Central London this proportion rises higher still, to 34% of all purchases. Prime Central London has also seen a considerable surge in buyers purchasing an additional residence, jumping to 30% this quarter compared to only 18% in the first three months of the year.
In Q2 2013, 44% of all Prime London purchases were made by cash buyers, representing a 5% rise on the previous quarter. In Prime Central London, the key hotspot for overseas investors, this trend is even more acute and the proportion of cash buyers has jumped by over a quarter (26%) to account for 68% of all purchases in Q2 2014.
As the borrowing climate changes and banks become more acute to stress tests and affordability checks, people with the equity to purchase a property outright hold the upper hand. The proportion of first time buyer purchases across all Prime London has fallen from 27% in Q1 2014, to 21% this quarter. This can be attributed to prices rising out of reach for many aspiring homeowners in the capital and stricter affordability criteria under the Mortgage Market Review regulations slowing the borrowing process.
Q2 2014 has witnessed a slowdown in price growth and forward looking indicators predict this trend may continue into Q3 2014 through to the end of the year.
With supply on the up and demand easing, we can expect a levelling off of the market as prices begin to return to a steadier, healthier rate of growth. This, in part, will be as a result of sellers being more realistic with pricing in the context of recent changes in the market.
Prime London Property remains a sought after investment, which will continue to keep prices high, especially in Prime Central London.
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 Outer 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.