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London Property Monitor - Q3 2015

Mon 09 Nov 2015

  • In Q3 2015, prices in all of Prime London rose by 0.3%,with stronger growth in Prime Central areas
  • But the premium paid for Prime Central property is on thedecline, down from 44% two years ago to 30%
  • Buyer demand rises 4% in Q3, while number of homes forsale falls 5%

Q3 at a glance


Londons property market continued to putthe winter of 2014 behind it, but the rate ofrecovery remains gradual. After a six-monthperiod of stalling prices, which lasted fromSeptember 2014 to March 2015, the marketpicked up throughout spring and into summer,but cooled slightly after a solid start to Q3.

The Chancellors Summer Budget built on theconfidence afforded by the conclusive electionresult in May, and the markets resurgencewas further strengthened by recoveringwage growth and low inflation figures, whichhelped improve consumer finances. In turn,mortgage lending increased in August and the re-mortgage market, in particular, returned to strength, as home-owners locked into cheap fixed-rate deals.

Despite this support from the wider economy, price growth was by no means uniform across Prime London with average prices rising slightly faster in Prime Central London than Outer Prime. In Q3, prices rose by 0.4% across Prime Central London, compared to 1.2% in Q2 whilst appreciation in Outer Prime London was a more modest 0.3%. Overall, Prime London prices improved by 0.3% for the three months ending in September 2015, compared to 1.1% in the three months to June.

While the annual change in prices is negative, the longer term change over a 24-month period is very positive for home-owners. Prime London as a whole has seen prices increase by 11% over the last two years, with Outer Prime values growing by more than 12.5%.

Premium PrimeNinety years after the phrase location, location, location first appeared in print, the sentiment remains as true as ever. In spite of the continuing gains made by Outer Prime London over the last two years, Prime Central London continues to enjoy a substantial, if shrinking, premium over Outer Prime properties a premium that now stands at 77% compared to 98% two years ago.

Overall, the premium paid for Prime Central London property has held steady at the 30% recorded last quarter, but remains some way below the 44% witnessed in Q3 2013. This suggests that after 24 months of relative stagnation in Prime Central London prices, it now looks to be good value compared to Outer Prime.


Property Hotspots

One-bedroom homes have seen the largestprice increases in the past quarter acrossPrime London with property values up 3.5%since Q2 2015. This amounts to an average21,240 increase in cash terms for suchproperties. Meanwhile, larger properties haveexperienced slower price growth in Q3, and thetypical four-bedroom home has risen in valueby 0.5% (or 16,900) in the past three months.

This trend is even more pronounced inPrime Central London, with smaller one-bedroomproperties experiencing the fastest quarterlyincreases by far. One-bedroom propertiesare on average 5.9% more expensive thanin June up 41,798 quarter-on-quarter (thisis also the largest increase in absolute terms).

In Outer Prime London areas, growthis more consistent across the differentproperty types. Demand for one-bedroomstarter homes has pushed prices up 0.6%over the quarter, equivalent to a 3,253uplift. But the value of four-bedroomfamily homes in Outer Prime London hasalso climbed 0.5%, or 7,865, since Q2 2015.

Hot spots

When it comes to location, Pimlico and Westminster are the hottest ticket in town,with the fastest increase in house prices overthe last year. New homes and waterfrontdevelopments have propelled significant pricerises in this area of the capital, and propertyvalues have increased 5% over the past twelvemonths equal to 65,700. With the averageproperty price now standing at 1,367,500, thisneighbourhood offers more reasonable houseprices than other nearby Prime Central locations,which has ensured strong demand and less of apronounced impact from the stamp duty changesat the top end.

In second position, Earls Court has seen stronghouse price growth on an annual basis, withlocal property prices climbing 3% in the pastyear. In cash terms, this means the typicalproperty price in the area was growing ata rate of 124 a day during Q3.


Price per square foot

With demand for housing so high in the capital,the typical Prime London buyer can expect topay 1,215 on average per square foot of property.This has dipped 0.5% in the past quarter, ashouse price growth softens across the board.

In the exclusive addresses of Prime Central London,where space is at even more of a premium andbasement excavations are becoming de rigueur,one square foot of property will cost you more -approximately 1,590. However, this has fallenyear-on-year by 0.9%, as demand for PrimeCentral property has weakened.

In Outer Prime suburbs, property sells for around890 per square foot, and this has seen the biggestdecrease in the past twelve months, of 1.6%.


Supply and demand

Q3 saw the supply of London homes uncouplefrom demand, and in the midst of this divergence,competition among buyers is growing even further.

Buyer demand for London properties has risen4% in the last three months, but over the sametime period the supply of properties coming ontothe market has fallen 5%. As these trends movein opposite directions, London buyers need to bepoised to move quickly, and have their financesarranged in advance to secure their first-choiceproperties. There are currently 14 buyers registeredfor every available property for sale in London,and this has risen from an average of 12 during Q2,and 10 at the end of 2014.

While a shortage of homes for sale existsacross all of Prime London, there is a significantdisparity in levels of demand across the capital.Compared to last year, buyer demand in PrimeCentral areas has fallen 6.5%, while demand incheaper Outer Prime suburbs has risen 9.3%in the last twelve months. And in extreme cases,Brook Green for example, there are on average20 buyers chasing every available property.


Overseas buyers and investors

Whilst foreign investment is still significant,the long-term trend reveals that the prominence offoreign nationality buyers in the London propertymarket is waning. This has been expedited recentlywith the strengthening of pound sterling, stricterGovernment measures on non-domicile status, andheftier stamp duty for higher value purchases.

foreign nationality_buyers


Overseas and foreign nationality buyers accountedfor just over a fifth (21%) of all Prime Londonproperty purchases in Q3 2015, which has fallenquarter-on-quarter, and is also down from aquarter (25%) of all sales the same time last year.

The influence of overseas buyers has alwaysbeen felt most keenly in Prime Central London,and foreign nationalities make up a much higherproportion in these pricier famous postcodes.During Q3, the proportion of overseas andforeign nationality buyers stood at nearly athird (32%), but their share of sales activityis mirroring the wider downtrend acrossthe capital. The proportion of overseasbuyers has fallen from 34% the previousquarter, and from 37% of all property salesin Prime Central areas during Q3 2014.

In Prime Central London, the investor shareof the market has also dipped in the pastthree months. Investors accounted for 35%of all sales during Q3, and this has droppedfrom 42% in Q2.


Mortgages and first-time buyers

The current favourable lending climate, andrelative cheapness of mortgage borrowing,has supported a lot of new buyers onto theproperty ladder in London. First-time buyersaccounted for 26% of all property sales acrossthe capital in the three months to September2015, showing encouraging improvement fromthe 23% figure a year ago.

The proportion of cash purchases in Prime Londonhas fallen from 47% last quarter to 35% in Q3 2015,as mortgage finance continues to become moreaffordable.


London lettings


Average weekly rents across Prime London have fallen 1.5% inthe three months to September, as competition relaxes at thetop end of the lettings market. At the most expensive end ofthe private rented sector in London, lettings activity haslessened during Q3, as many tenants are already committedto longer contracts and less turnover of leases has slowed rentrises. In Prime Central London, the typical rent is now 706 perweek, an increase of just 0.3% from a year ago.

In contrast, the lower and middle range of the letting marketis much more active, and as a result rent prices have been morerobust. Demand for rental properties is strongest in Outer PrimeLondon suburbs popular with young professionals for theirleafier feel and more affordable cost of living. Offering the mostcompetitively priced rents across the capital with the averageweekly rent standing at 584 these neighbourhoods haveexperienced the fastest annual rent growth, up 2.7% sinceSeptember 2014.

Overall, tenant demand in London has risen 21% in the pastthree months, compared with just a 7% uptick in the supply ofhomes to let on the market. Competition for rental propertiesis most acute in Outer Prime locations, with an average of45 registered tenants for every available rental property inClapham during Q3 2015. In Fulham, this ratio stands at 28,while in Balham there are 25 tenants for every home to leton the market.

Across Prime London as a whole, two-bedroom propertieshave seen the biggest increase in rent prices over the lasttwelve months, climbing 3.5%. In Outer Prime areas, rents oftwo-bedroom homes have appreciated at an even faster rateof 5.3% year-on-year.


Looking ahead

London Lettings1


The Prime Market Monitor uses a repeat valuation methodologythat tracks values in a robust mix-adjusted basket of propertiesacross all Prime London in the main areas in which Marsh & Parsonsoperates. Prime Central London comprises representativebaskets of properties covering Chelsea, Kensington, Notting Hill,Holland Park, Pimlico and Earls Court and South Kensington.Outer Prime London comprises outer areas such as Clapham,Balham, Battersea, Barnes, Little Venice, Fulham, North Kensingtonand Brook Green. Prime London is used to describe all theseareas combined including Prime Central London and OuterPrime London.

Supply and demand statistics are based on an audit of Marsh &Parsons registrations and instructions during the quarter. Buyerprofile information taken from Marsh & Parsons quarterly MI data.

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