Continued strong activity and resilient prices across prime London despite some caution ahead of July’s general election. Second half of the year expected to be stronger as confidence improves and interest rates continue to fall.
Frances McDonald, Director, Residential Research
The top end of London’s housing market remained resilient during the second quarter, despite some uncertainty in the run up to July’s general election.
Some prime buyers adopted a wait-and-see approach until the results of the election were known. But the shorter than expected run in to the election means there is now the opportunity for buyer demand to gain traction over the Autumn, once most of the uncertainty is behind us.
But realistic pricing will be increasingly important, especially as more stock is expected to come to the market over the summer.
Net agreed sales above £1 million in London remained 5% up on an annual basis in June, according to TwentyCi, but this is lower than the 15% increase during May. At the same time, new instructions above this price point were down -11% compared to last year highlighting that sellers were cautious to come to market immediately ahead of the vote.
The expectation of Labour’s majority win, given what we knew about voting intentions prior to the election, also means a change in government was already largely priced in to many parts of the prime market.
Prices in prime central London adjusted marginally by -0.4% in the three months to the end of June, and by -0.9% over the past year. The impact of non-dom tax changes is likely to be most keenly felt in prime central London, where those affected will have been weighing up their options.
But there is little evidence to suggest we’ll see a flurry of stock coming onto the market, as many who will be affected are likely to retain their base in the capital. Also, most prime central London buyers, and indeed sellers, do not have non-dom status and demand from domestic and other international purchasers continues to be resilient, partly because of the value on offer in a historical context.
Still, the uncertainty could act as a drag on the pace of price recovery, as proposals work their way into law and Labour make any amends to the Conservative’s original proposals to abolish non-dom status.
Across other more domestic prime markets in London, values remained broadly flat during Q2 (0.1%) and over the past year (-0.1%). Here, buyers tend to be more reliant on mortgages and so the future of interest rates also plays a role in demand levels. Some buyers have been encouraged back to the market in recent weeks as several lenders have started to lower their rates, in anticipation of a Bank base rate cut.
Overall, a continued supply and demand imbalance for family houses has supported values, particularly in prime locations across South West and North & East London.
More specifically for these markets, Labour’s plans to introduce VAT on private school fees could see more demand filtering into the state and grammar school systems which may in turn increase the house price premiums we know are already evident around high performing state schools.
Looking forward, while much remains to be seen in terms of specific policies and proposals, sentiment is likely to improve now that the results of the election are known.
For outer prime London, the expectation of a fall in Bank base rate will also come as welcome news and we expect continued demand for family houses and renewed demand from buyers more reliant on mortgage debt to lead to a stronger second half of the year.
For central London some may remain cautious, ahead of Labour’s first fiscal event. Here, the relatively small falls in value witnessed during the second quarter are also underpinned by where prices sit in a historical context. Overall across prime central London, prices remain -19% down on their previous peak a decade ago suggesting it is still a case of when, and not if, a stronger recovery takes hold.
< View our latest Q2 2024 updates here.
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