London Property Monitor - Q3 2014
Wed 22 Oct 2014
- Quarterly house price growth cools to 0.5% in Q3 2014 - dropping from 3.1% in the previous quarter as the market attunes to calmer conditions
- Emerging Outer Prime London outpaces the wider market trend with average prices up 14.5% in last year - compared to 11.4% annual rise across whole of Prime London
- Buyers have cause to celebrate, as supply rises 13% in the past three months and competition cools
Price growth flattens during Q3
London house price rises are settling down as the wider UK property market self-corrects into a more sustainable growth trajectory than experienced at the start of the year. Following a robust 11.4% climb in Prime London property values over the past 12 months, there has been a sharp decline in the rate of quarterly price growth across the capital.
The average Prime London property has risen just 0.5% in value over the course of Q3 2014, down from a 3.1% increase in Q2 as we enter a more sustainable market. In Prime Central London quarterly price growth has slowed to 0.3% in the three months to September 2014, compared to 2.1% in the previous quarter. Outer Prime London house prices have climbed 0.8% during Q3, much lower than the 4.3% uplift experienced in Q2.
But when we consider the longer-term picture, values are still showing healthy progress, with the average price of a Prime London property rising by 163,973 in the past year overall.
Outer Prime outstrips the centre
After the steep price rises witnessed in the capital over the past year, buyers have been casting their net wider to seek better value and there has been a renaissance of interest in Outer Prime London. With average house prices in Outer Prime areas only three-quarters that of Prime London as a whole, these more affordable urban villages are becoming the first port of call for new buyers looking for a starter home, and young families wanting space to grow.
As a result of this consistently burgeoning demand, house prices in Outer Prime London are climbing at a faster pace than more central areas showing a 14.5% annual increase compared to a 9% rise in property values over the past year in Prime Central London.
Brook Green, Clapham and Balham have been blazing the trail in particular, with vigorous annual price growth of 22%, 20% and 17% respectively. In contrast, properties in the costlier Prime Central postcode of Chelsea have grown in value by a more modest 4% in the last twelve months.
It appears that the very top echelons of the housing market have been the first to feel a cooling in growth. In Chelsea, where the average home costs 2,380,500, property values dropped 0.4% in the three months to September. This is the first time a fall has been recorded in this area since December 2012. Kensington commands one of the highest average house prices across the capital, currently standing at 4,000,345. Here, growth has paused for breath, with prices remaining stationary over the course of Q3.
Consequently, the premium you can expect to pay for homes in exclusive Prime Central areas of the capital, as opposed to Prime London as a whole, continues to hold steady at 41% - albeit the lowest level on record. This has fallen from a 44% price premium for Prime Central property at the same point last year.
Popularities of one bedroom properties push up prices
Growth in the London property market has been helped by demand from first-time buyers, youngprofessionals and buy-to-let landlords.
While the value of three- and four-bedroom family homes across Prime London has stabilised and remained flat during the past quarter, one- and two-bedroom homes have experienced steady price growth throughout Q3.
One- and two-bedroom properties in Outer Prime London have seen the steepest annual growth, both increasing in value by nearly a fifth (19%) in the past year. For a one-bedroom property, this is equivalent to a 86,880 increase in price, while for two-bedroom homes this totals a 118,650 annual rise. These property types are showing double the rate of growth in Outer Prime London compared to Prime London overall emphasising the popularity of these village enclaves with younger new buyers.
Property type breakdown
Properties above 2million
Over the last quarter, the proportion of PrimeLondon properties worth 2m or more has risen by 3%, reaching 27%. In Prime Central London, where the average property price now stands at 2,246,650, 42% of houses are valued at 2million or above. Even in Outer Prime London, typified by swathes of suburban semi-detached or terraced properties, 15% of homes fall into the over 2m price bracket. This has risen by 3% over the past year.
This highlights the extensive reach of a proposed mansion tax for properties worth over 2m, and the scale of London households affected. It would impact many ordinary working families for whom their home is their single major asset investment and a heftier annual tax bill is an unrealistic and impossible ask. Theaverage cost of a four-bedroom home across all Prime London is 2,209,423, and a house of this size hardly qualifies for the provocative label as a mansion.
As the general election looms, this much-hyped Labour Party proposal could also have worrying implications for house price growth a few rungs lower down the ladder, as homeowners and investors become wary of values rising above the potential mansion tax threshold. AcrossPrime London, 56% of all property is currently worth 1m or more. In the more highly sought-after neighbourhoods of Prime Central London, this rises to over two thirds (70%) of all houses. The proportion of homes commanding a price tag of a million pounds or more in Outer Prime London currently stands at 47%.
Correcting the supply/demand conundrum
Since the last quarter, the supply of London Prime property has risen by 13%, which has softened house price growth to a more viable long-term pace, and steadied the mismatch with demand. The level of stock on the market is unrecognisable from a few months ago, when buyer choice was severely restricted, and this is taming asking prices from unrealistic and bloated expectations.
As a result, the number of registered buyers per property across Prime London has dropped month on month, from 16 in June, to14 in July, and 12 over the course of August and September. This ratio has halved since the start of the year, when there were 24 buyers for every available property in January and competition was more intense. Now trading conditions have calmed, buyers are benefiting from a broader range of properties and prices on the market, and sellers have a more favourable environment to contemplate searching for their next onward purchase too. Demand is heightened in Prime Central London hotspots, where the allure of world renowned postcodes is greater, and here, there were an average 14 buyers per property during Q3 2014.
While levels of available housing stock are moving in the right direction and beginning to stem the shortfall, compared to the same point last year there has beenjust an 8% increase in the supply of properties. Asahub for employment, London will always require a steady flow of supply to meet the ceaseless need for homes and temper future price inflation, and there is plenty of spare capacity to be seized upon.
Resurgence of overseas buyers & investors
After the recent comeback of UK buyers to the Prime London market, in the wake of Government initiatives such as Help-to-Buy, there has been a rise in the number of overseas and foreign nationality buyers over the past three months. This group now account for a quarter (25%) of all purchases across Prime London, up from justa fifth (21%) in Q2 2014. However, this still represents a lower market share than a year ago.
In the typically more expensive locations of Prime Central London, the proportion of overseas and foreign nationality buyers has returned to the medium-term average observed over the past few years. ThroughoutQ32014, 37% of all purchases in PrimeCentral London were made by overseas and foreign nationality buyers. This has risen from 30% in the previous quarter, after a flurry of UK buyers in the first half of the year.
There has been a sharp retreat of first-time buyer activity in Prime Central London areas, with the proportion of new buyer purchases dropping to just 5% in Q3, down from 16% three months previously.
Investors continue to account for the largest proportion of Prime London property purchases in Q3 2014, at 26%. Howeverthis level has dropped from a record 31% in Q2, in line with the long-term trend.
Prime Central London has also seen a new influx of investors, up from 34% last quarter to 36% in the past three months. Similarly, there has also been uplift in the proportion of buyers purchasing an additional property, climbing 2% during Q3 2014 to 21% of sales.
As a result of the prominence of these groups in the Prime Central London market, 63% of all purchases were made by cash buyers in Q3. This has grown from 45% of sales a year ago, as those with the outright equity to buy a home stand in better stead in light of the stricter lending regulations that have come into force this year. Across all of Prime London, there has been a 10% annual increase in the proportion of cash buyers, to 46% of all purchases in Q3 2014.
The rise of the family renters
The average rent in Prime London is 621 a week. InPrimeCentral London, weekly rents are 14% higher thantheaverage across all Prime London, at 705 on average. Outer Prime London rents are typically 9% lower than the wider capital average, currently standing at 567 per week.
High demand, particularly amongst corporate lettings, forrental property in the most covetable, central locations in the city has pushed Prime Central London rents up by 4.7% year-on-year. This is nearly double the pace of the steadier rent growth witnessed across Prime London as a whole, with 2.4% annual increase in rental values.
Rents of four-bedroom properties in Prime Central London have seen the biggest increase, climbing 9.6% in the past 12 months. As house price growth priced many out of the market earlier this year, more and more families are opting to choose location and size over homeownership and turning to the rental market for more flexible and affordable accommodation. This demand at the higher end of the rental market also reflects the corporate appetite among families across the globe relocating for business and job opportunities.
Four-bed rental properties in Notting Hill are at the top of the lettings chart, costing 1,820 a week on average. This is more than double the rent of an equivalent four-bedroom home in Outer Prime areas of Balham, Battersea, Clapham and Brook Green.
All markets go up and down, and over the course of Q3 weve neared a plateau in the trajectory of house price growth. This isnt a step backwards, but a necessary breather for the long-term health and sustainability of the Prime London property market. We expect prices to stabilise as 2014 draws to a close, as a more prudent picture emerges after the staggering rate of price inflation witnessed at the start of this year.
That is not to say its going to be a quiet quarter for the property market. Sales will continue to power forward as properties are priced more realistically, and buyers thrive in a more favourable trading environment with greater choice on the market and less cutthroat competition to contend with.
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. OuterPrimeLondon 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.