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Cash purchases on the rise in Prime London

The latest London Property Monitor from estate agent Marsh & Parsons has revealed that once again ‘cash is king’ as three in five property purchases made in Prime London during the first quarter of the year were by BTL investors and those seeking to buy a second home, amplifying the proportion of cash transactions.

According to the data, BTL investors accounted for 36% of all sales from January to March, as many rushed to beat the April 1st implementation of an additional 3% Stamp Duty. This represents a significant spike from 26% of purchases during the previous quarter, and a sudden reversal of the recent trend of weakening investor influence. Investor share of the market has been in slow  decline last year since it peaked at 37% in Q4 2014. Just behind the landlords and investors, becoming the second most prominent type of buyer in Prime London during the first quarter of 2016, were those purchasing an additional residence. This buyer group saw an even bigger jump in market share quarter-on-quarter, with second-home owners accounting for nearly a quarter (23%) of all Q1 property purchases, up from just 14% in Q4 2015.

Together, buy-to-let investors and second-home owners accounted for three-fifths (59%) of all purchases in Prime London during Q1. In Prime Central London, this figure was even higher reaching three-quarters (76%). Second-home owners overtook investors as the most common type of buyer witnessed in Prime Central London during Q1. The majority (41%) of all property purchases in Prime Central London were made by those buying an additional residence, a significant leap from 24% in Q4 2015. Property investors also seeking to circumvent the extra 3% levy accounted for a further 35% of property sales.

This preponderance of second-home owners and buy-to-let investors has translated into a much higher proportion of cash purchases in Prime London. Two-fifths (40%) of property purchases were made by cash buyers in Q1, an increase from 34% in Q4 2015, and 36% a year ago. In Prime Central areas, this rose to almost half (46%). David Brown , CEO of Marsh & Parsons, comments: “Investors will always be the stalwarts of the Prime London property market its the golden goose of capital returns, and people are still clamouring for a slice of the action. But second-home owners really jumped to it this spring too, and were much more prominent in the market than we would typically expect. But this was by no means a typical quarter. Sales activity in the opening three months of this year has been exceptionally skewed by the additional layer of Stamp Duty for both buy-to-let and second-home purchases. Naturally, the knee-jerk reaction among these groups has been to hurry through property purchases before the deadline, and make savings while they can.

Now that the ruckus has passed, well see much more orderly transactions over the summer months, as the market re-balances towards first-time buyers and other owner-occupiers for whom it will just be business as usual.”

Demand drives Outer Prime growth

Average Property Price Quarterly Change Annual change Price per sq. ft
Prime London

PCL

Outer Prime

$1,610,602

$2,088,867

$1,192,120

0.2%

0.1%

0.5%

2.6%

2.4%

2.9%

1,233

1,612

907

Overall in the past twelve months, buyer-demand has jumped 9% across all Prime London, taking the ratio of registered buyers for every available property for sale to 14. Competition has ramped up on both a quarterly and annual basis, increasing from 13 buyers to every property on the market in Q4 2015, and 12 in Q1 2015. But rates of supply and demand are moving in vastly divergent directions across the capital. In Outer Prime areas of London, buyer-demand has soared by almost a fifth (19%) since March 2015, while in Prime Central London this has fallen by 4% over the same 12-month period. Similarly, the supply of homes for sale in Outer Prime London has dropped 12% year-on-year, whilst supply has climbed 11% in more exclusive Prime Central London. Due to the severe mismatch between supply and demand, Outer Prime parts of London are seeing the highest levels of competition across the capital with on average 16 registered buyers vying for every property for sale during Q1, an acceleration from 12 a year ago. In hotspots such as Balham, the number of applicants for every available property rises to 21.

This fierce demand has driven a significant growth spurt in Outer Prime London, greatly outstripping the price growth witnessed in other parts of the capital on both a quarterly and annual basis. In Balham, average property prices are showing a 7.2% improvement on Q1 2015, and have soared 3.4% in just three months. Average house prices in Outer Prime London overall are up 2.9% year-on-year, following a 0.5% jump since Q4 2015 outperforming the rest of capital.David Brown concludes: “The market is brimful of buyers, and nowhere more so than the popular addresses of Outer Prime London. There’s still a significant price premium to be paid for living in the central confines of our capital, and this has drawn certain geographical battle lines for the next generation who are increasingly focusing their efforts in Outer Prime territories. For first-time buyers and young professionals, these are the places where they can afford bigger properties that offer them room to grow, and for savvy investors, these are the places where prices still have room to grow too.”

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