London Property Monitor - Q4 2015
Wed 27 Jan 2016
Home values across Prime London as a whole rose by 0.9% in Q4 2015, with Outer Prime areas experiencing the strongest quarterly growth
- Demand for London properties rose 14% across 2015, while supply of homes on the market has fallen 12% over the same period
Q4 at a glance
The London property market enjoyed limited growth across the board in the final quarter of 2015. Prime London property prices experienced a 0.9% uptick between Q3 and Q4 2015, taking annual price growth to a healthy 1.7%.
These robust figures indicate an underlying confidence in the London property market, driven by solid and steady growth in real-term wages, low interest rates and an overall economy thats casting off its recession-era shackles.
Within the capital, the Outer Prime London belt saw house price growth of 1.1% since Q3 2015. Prime Central London recorded slightly below average quarterly growth, with values rising by just 0.8% in the three months to December 2015. This means the premium buyers will pay for property in Prime Central locations has fallen slightly from 30.1% in Q3 2015 to 29.9% in Q4 2015.
The recent cooling in Prime Central price growth is largely due to the effects of the Chancellors changes to Stamp Duty, which is causing some buyers to temporarily delay purchasing top-end property until they see what effect the increased rates have on the market as a whole. However, the area remains popular with foreign investors and wealthy professionals who are willing and able to pay that bit more for the privilege of living among some of the UKs if not the worlds most famous post codes.
One- and four-bedroom homes have seen the biggest jumps in value within Prime London, with both property types experiencing price rises of more than 3% in the year to December 2015, equating to real-terms rises of 18,417 for a one-bedroom home and 70,727 for a four-bedroom property. The growing popularity of these two vastly different property types is due to a combination of demand for one-bed starter homes among first-time buyers and buy-to-let investors, plus families further up the chain looking for larger homes.
In Prime Central London the average value of four-bedroom properties increased 4.0% on an annual basis, a jump of 125,481 in cash terms. In Outer Prime locations, one-bedroom properties saw the biggest year-on-year price increase of 2.7% (equivalent to 14,524).
Supply and demand
On an annual basis Q4 2015 saw demand in the property market continue to rise, as the supply of homes on the market faltered. However, there are signs that this trend may have begun to balance out and even reverse in recent months.
Across Prime London as a whole, buyer demand rose 14% between Q4 2014 and Q4 2015, but the supply of homes up for sale dropped by 12% over the same period. This disparity is largely due to the stimulus the government has given to the bottom of the market, encouraging first-time buyers and more recently inadvertently accelerating buy-to-let purchases ahead of the April stamp duty switch. This is combined with hesitant sellers having to adjust to a more price sensitive property market, after the heady price growth witnessed back in 2014.
While the past year has seen a property supply shortfall across all of Prime London, the shortage has differed in scale between Outer Prime and Prime Central London. Demand for homes in Outer Prime London increased by 22.7% on an annual basis, as supply fell by 18.7% over the same period an indicator of the zones popularity among a range of buyers. However, in Prime Central, which typically caters to a more niche and high-end range of buyers, demand rose by only 3.4% between Q4 2014 and Q4 2015, while supply contracted by 3.1%.
However, on a quarterly basis, there are signs the supply-side is starting to get moving again. Across all Prime London, supply has inched up by 0.1% since Q3, while demand has shrunk by 4.3%. Similarly, in Prime Central locations, buyer demand declined 6.6% quarter-on-quarter, while the supply of property rose by 2.3%. Only Outer Prime London partially bucked this short-term trend, with the supply of properties in the belt continuing to fall; not uncommon in the run-up to Christmas in such family dominated areas. The figures are a positive initial indicator that the Governments much-touted proposals to increase the supply of housing in the London market may be beginning to bear fruit.
As a result, competition for homes cooled slightly during the last three months of 2015. There were on average 13 buyers for every available property across Prime London, down marginally from 14 in Q3, but still up on an annual basis from 10 in Q4 2014.
The Governments changes to non-domiciled tax status and increase to the Stamp Duty rate on higher value properties continues to ruffle feathers in the Prime London property market, and foreign buyer influence has been slowing waning over the course of 2015. Overseas and foreign nationality buyers accounted for 21% of Prime London property purchases in the final quarter of 2015 consistent with the previous three-month period and a narrower proportion than at the start of 2015, when such buyers made up 23% of property sales in Q1.
The lure of purchasing property in the capital and the promise of high returns is still persuading many foreign buyers to jump through the extra Treasury tax hoops, and in Prime Central London the proportion of property purchases accounted for by buyers from, or living in, foreign countries stood at 28% in Q4 2015. But this figure still represents a two percentage point drop on Q4 2014, and has fallen significantly from 38% of all properties sold in Q4 2013.
Mortgages and buy-to-let investors
Mortgage buyers rocketed from 49% of all Prime London property purchases in Q4 2014, to account for two-thirds (66%) in Q4 2015. Over the same period, Prime Central London has witnessed the volume of mortgage buyers grow strongly, to now account for 44% of all home sales between October and December 2015. The strong year-on-year growth figures represent the success of initiatives to incentivise new buyers onto the property ladder, as first-time buyers and home-movers scramble to take advantage of the competitive mortgage deals available. As a result, the proportion of cash purchases in Prime London fell from 51% in Q4 2014 to 34% Q4 2015, reflecting both the increasing cost and taxation of buying homes in the capital to investors and the accessibility of mortgage finance.
The investor share of the London property market has gradually weakened. As of Q4 2015, just 26% of all Prime London property purchases were made by investors down from 28% in the previous quarter, and 37% a year ago. In Prime Central London, the prevalence of investors has also been challenged, with investors behind 36% of all property purchases, a mild reduction from 38% in Q4 2014.
After the Chancellors tweaks to landlords tax exemptions in his August 2015 Budget, the clampdown on non-dom status, capital gains tax and the more recent stamp duty changes on second homes, it will be interesting to see whether the investor share of the market will continue this downward trajectory in 2016.
The average weekly rent across Prime London reached 625 in Q4 2015, representing a 1.9% increase on the same period a year ago. Average rents in Outer Prime London were the main driver of this growth, rising by 2.8% between Q4 2014 and Q4 2015 to reach 575.
Average residential rents in Prime Central London have risen by a more modest 0.6% year-on-year. The relatively slower pace of rent growth in the Prime Central area represents a broader weakness at the top end of the lettings market as the most luxurious rental properties struggle to compete against their more reasonably priced peers in other locations. In particular, the market for lettings above 1,500 a week has seen weaker activity in 2015, and this is dampening average rental figures.
One-bedroom lettings properties have experienced the largest positive annual increase in rents across the capital, growing by 6% from 392 to 415 per week across all Prime London. This rises to 7% growth over the same period in Prime Central London areas.
Meanwhile, four-bedroom lets generally experienced the weakest rental growth, with the average rents for such properties in Prime London falling from 1,128 in Q4 2014 to 1,107 in Q4 2015 an annual drop of 2%. In Prime Central London, the average rent for a four-bed let fell by 5% over the same period from 1,673 to 1,597. The four-bedroom rental market has experienced a slump recently, as landlords often prefer to hold out for a professional family to fill larger rental properties, rather than sharers, meaning it can take longer for them to find tenants.
In Q4 2015, there were eight registered tenants for every available rental property across all of Prime London, which has held steady since a year ago. In Outer Prime London, the most competitive areas for tenants are Clapham, with an average of 18 tenants to every let, Balham, with an average of 14, and Fulham with 13. Tenant competition is even more acute in some parts of Prime Central London. In Q4 2015, there were an average of 21 tenants for every rental property in Pimlico up from an average of 18 in the previous quarter while Notting Hill averaged 12 applicants for every let.
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, Pimlico and Earls Court and South Kensington. Outer Prime London comprises outer areas such as Clapham, Balham, Battersea, Barnes, Little Venice, Fulham, North Kensington 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.