London Property Monitor - Q2 2016
Sun 21 Aug 2016
Typical property values across Prime London grew by 1.3% between Q2 2015 and Q2 2016. Outer Prime London was the predominant cause of this growth, with average price increases of 2.7% on an annual basis.
First-time buyers are now the most prolific buyers across all Prime London, accounting for more than a third (34%) of purchases as investor activity took a back seat. This is up from 22% in Q1 2016 and 25% a year ago.
Clapham enjoyed Prime Londons highest rate of annual growth, registering a 9.2% increase on Q2 2015.
Q2 at a glance
The rate of annual house price growth in Prime London slowed in the second quarter of the year as the frenzied first few months gave way to a period of calmer equilibrium once the new Stamp Duty deadline passed at the beginning of April.
The Prime London housing market enjoyed a 1.3% increase year-on-year, with this figure buoyed by a 2.7% improvement in Outer Prime London. Typical values in Prime Central London are just 0.4% higher than this time last year.
The typical price per sq ft across Prime London as a whole now stands at 1,231, although this rises to an average of 1,600 in the most prestigious postcodes. Square footage is more affordable in the outer suburbs, commanding an average of 914.
Despite Prime Central Londons flattening growth rates in Q2, the central zone still holds a significant price premium over areas further away from the epicentre, but this margin is being gradually eroded. Buyers in the most expensive Prime Central areas can currently expect to pay 28.9% more than Outer Prime London, down from 29.5% in the first quarter and 30.1% in the second quarter of 2015. This is some way below the 47.3% peak witnessed at the start of 2012.
Price premium for Prime Central Property: Due south
Outer Prime London continues to outshine the central hub in terms of the rate of annual price appreciation. Clapham once again tops the charts, with typical values in the neighbourhood 9.2% higher than Q2 2015. Nearby Balham is not far behind with 6.5% growth in the last year, with North Kensington occupying third place (5.1%).
Balham takes the quarterly honours (3%), with Barnes a hairs breadth away (2.9% growth since Q1).
Larger properties witnessed the keenest value growth in Q2 2016 as buyers with families and those seeking extra space dominated the market. Across all Prime London, four-bedroom homes performed best on a quarterly basis in Q2 2016, with their value rising 1% on Q1 2016.
This pattern is repeated in Prime Central, with four-bed properties again performing best on a quarterly basis, holding their value while all other property sizes declined. Four-bedroom homes also triumphed on an annual basis with 1.1% growth.
In Outer Prime London too, four-bedroom homes excelled on a quarterly basis, generating growth of 2.8% on a three-monthly period.
However, on an annual basis, one-beds were the best performers, boasting a 2.7% growth rate across Prime London as a whole. Bijou apartments also fared best annually in the outer ring of the capital too, with growth rates of 5.4% on Q2 2015.
Getting into the groove
After the flurry of activity in the first three months of the year, quarter two witnessed a more sedate state of affairs as the property market settled into a more genteel groove. Despite this, the supply of new properties remained relatively consistent, dropping by just 0.2%. Meanwhile, demand softened slightly, with 5.9% less interest than in the first quarter.
In Outer Prime London, the quarterly drop in demand was less pronounced at just 2.8% and, encouragingly, supply in the suburban ring grew by almost 5%.
The positive news for buyers is that competition for homes was slightly less fierce in Q2 than it was at the beginning of the year, with 13 registered buyers for each property across all Prime London, compared to 14 in the first three months of the year. Theres encouragement for sellers too, with the number of buyers per property having increased from 12 in the second quarter of 2015.
Not content with being one of the flavours of the month in the lettings market, Balham also sits astride the areas with the keenest demand, with 23 applicants for each available property. Pimlico takes silver with 19 applicants per property, with Brook Green and Little Venice sharing the bronze with 18.
First-time buyers fight back
With the additional Stamp Duty levy targeted at second-home owners kicking in at the beginning of April, it was no surprise to see buy-to-let investors dominate the Prime London property landscape in the first quarter of 2016 as landlords raced to expand their portfolios before the additional charges kicked in.
As such, it was expected that the portion of the market accounted for by property investors would fall in the second quarter of 2016, but this reduction has been even more marked than expected. Having accounted for more than a third (36%) of Prime London transactions in the first three months of the year, such purchases represented just 13% of sales in Q2.
Instead, it was first-time buyers who came to the fore. Those taking their first step on the property ladder represented 22% of the market in quarter one, and this rose to 34% in Q2, making them the most common buyer type. This new lifeblood at the bottom of the supply process also freed logjams further up the chain and enabled upsizing activity to significantly increase. Having accounted for just 9% of transactions in Q1 2016, second steppers and those moving to larger properties represented 22% of sales in Q2.
This wider trend wasnt witnessed in Prime Central London however, with investors still most prominent for the most exclusive enclaves, accounting for 31% of sales a 10% decrease from the 41% proportion in Q1, but 10% higher than Q2 2015s 21%.
In terms of how purchases are being funded, cash remains king in the capitals epicentre, with 61% of transactions in Prime Central London in Q2 being completed without mortgages. This percentage is precisely reversed across Prime London as a whole where 39% of properties are bought with cash, and three-fifths are funded by home loans.
Overseas interest in London property has fallen slightly across Prime London as a whole, but has remained more consistent in the most desirable, central parts of the capital. Foreign buyers accounted for just 14% of purchases across Prime London in Q2 2016, down from 20% in the first three months of the year and 22% in the same period last year. In Prime Central London, almost a third (31%) of transactions were accounted for by buyers from overseas in the second quarter, down 3% on an annual basis and unchanged since the previous quarter.
Average weekly rents across Prime London increased by 1.6% in Q2, meaning tenants now pay an average of 638 per week. This uptick is chiefly driven by price growth in the outskirts of the capital, with Outer Prime London registering a 2.5% improvement over the same period. Quarterly growth in the very centre of town was more modest in the three months to the end of June, rising by just 0.4%. This means typical weekly rents are now 713 per week in Prime Central London, and 591 weekly slightly further out.
Annual rental changes are flatter than the quarterly volatility and have actually fallen in the most prestigious postcodes. Rents in Prime Central London have fallen by 1.1% since the second quarter of 2015, but a 2.1% increase in Outer Prime London over the same time period means there has been a 0.7% annual rise across Prime London as a whole.
Smaller properties continue to see the quickest appreciation in rents on an annual basis as tenants clamour for affordable accommodation. One-bed properties across Prime London experienced a 2.6% year-on-year increase, meaning landlords can expect to receive 416 per week for such lets, up from 405 in the second quarter of last year. This trend was particularly pronounced in Outer Prime London where single-bed properties enjoyed growth rates of 3.7% on an annual basis.
One-bed properties also stole the show on a quarterly basis in the centre of the capital. Rents for such properties rose by 1.7% in the three months to the end of June 2016, with a 1% uptick in Prime Central London. Further out, it was family homes that enjoyed the largest quarterly rent increases, with four-bed properties in Outer Prime London now commanding 2.5% more rent per week (878 v 857).
Competition for rents across Prime London has held firm in recent months, with an unchanged average of eight registered tenants per available property. This wider trend is bucked in certain Outer Prime hotspots where rental demand is far fiercer. There are 36 tenants for every available property in the regenerated South London enclave of Battersea, with nearby Clapham (26) and Balham (23) also witnessing keen tenant demand.
The road ahead
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.