Prior to the vote to leave the EU, there were early indications of the market bottoming out, following the adjustment triggered by the stamp duty reform in December 2014. But, more recent political and economic uncertainty has weakened buyer sentiment. For vendors who have realistic price expectations which reflect these falls in value, sales are taking place. There is, however, a lack of urgency in the market and those who need to sell may have to adjust their expectations further.

^{Source: Savills Research}

Prime central London: price growth

Post-referendum uncertainty is particularly impacting the most expensive and discretionary parts of the central London market that also carry the greatest stamp duty burden. Average prices in prime central London fell 1.3% in the three months to June, and they are now 14.4% lower than their 2014 peak.

International buyers are most prevalent in the prime central London market. Although they have had the advantage of weaker sterling, this has been offset by high stamp duty rates and an increased exposure to capital gains tax and inheritance tax.

Prime central London: transactions

Towards the end of 2016, transactions of property worth £1 million or more in prime central London began to pick up. This followed a slowdown in the months after the introduction, in April 2016, of a stamp duty surcharge for additional homes.

So far in 2017, there have been 864 transactions of property worth £1 million or more. This is 9.2% higher than the same period last year, but 8.9% lower than 2015. Despite the general election, June did not see as dramatic a slowdown in the number of £1 million-plus transactions across prime central London, as some anticipated.

^{Source: Savills Research, LonRes}

Outer prime London by price band

Since new stamp duty rates were introduced in December 2014, the lower-value markets of outer prime London have held up better than their central counterparts. Within these markets, lower-value properties have performed more strongly. Those worth less than £1 million have stayed flat since these tax changes, whereas £2 million-plus properties have fallen by an average of 8% over this period. Buyers in these more domestic markets continue to feel the constraints of mortgage regulation. Those who need to borrow have begun to reach the limits of loan to income ratios, even though they have benefitted from low interest rates.

^{Source: Savills Research}

Outlook

Our forecasts, published in November 2016, anticipated prime London values would fluctuate in 2017, but end broadly flat across the year. Increased levels of political and economic uncertainty make it less likely that year-to-date losses will be recovered in the short term.

As negotiations to leave the EU progress, we expect sentiment over the next couple of years to continue to ebb and flow, meaning there is little chance of upward pressure on house prices.

By 2019, however, assuming the economy begins to improve and confidence picks up, we expect stronger levels of price growth to return to the market.

^{Note: These forecasts apply to average prices in the secondhand market. New-build values may not move at the same rate}

^{Source: Savills Research}