What has happened since 2014?

The prime London markets have had political, economic and tax headwinds to contend with over the last three years – some of which have fundamentally changed the face of the market.

The most significant has undoubtedly been the changes to stamp duty. For buyers in this market, it has become a lot more expensive to move, and those discretionary buyers adding to a national or global portfolio face a bigger financial decision. The aftermath of these reforms has meant vendors have had to adjust their price expectations as this tax is absorbed into the market.

But it is not just stamp duty that has caused these price falls. A typical £2 million house in prime central London has seen price falls of almost double the stamp duty bill.

There has also been uncertainty in the market following the Brexit result and the snap general election. And international buyers have also had to deal with a less hospitable tax environment, following changes to inheritance tax and capital gains tax. The result is a market that has become sensitive to sentiment and price.

^{▲ Spring Terrace, Richmond, Greater London}

What about markets outside London?

While the number of £1 million+ properties actually sold in London is down, it is a different story for the country. Since the introduction of the first stamp duty reform in December 2014, values across the prime country market are up 4.5% as these markets have been more resilient to the factors that have subdued London.

However, the sentiment felt in London is beginning to ripple outwards. London’s prime outlying suburbs (such as Esher, Rickmansworth and Weybridge) saw price falls of 1.1% over the last year. These markets are feeling the effects of stamp duty, as well as mortgage regulation.

How have buyers changed since 2014?

Buyers are likely to be much more savvy about pricing – evident in the number of price cuts we’ve seen. Across the country, there has been a 90% increase in the number of £1 million+ properties that have had a price cut in the first half of this year compared to last. But where vendors are realistic, transactions have held up.

In addition, we have seen a reduction in investor buyers. In London, they have gone from accounting for 21% of Savills buyers in 2014 to 16% this year.

The uncertainty in the market has also made sales and purchases more needs based. Across London and the country, the number of £1 million+ properties that have been brought to the market in the first half of this year against the first half of last year is down by 16%.

Where does it leave us going forward?

Historically, we have seen an average of 5.7% real growth per annum in prime central London, boosted by London’s transformation into a global city. Yet the changes that have occurred since 2014 suggest a departure from this trend. With tax changes and uncertain sentiment, it is difficult to see what would support the growth to get us back to the same level.

Instead, we are expecting to see two more years of subdued growth – both across the prime London and country markets. Once a degree of uncertainty starts to clear we should see growth, when London will appear comparatively good value. Yet this bounce-back and growth is likely to be less than we’ve seen in previous cycles. London has already matured into a world city, and the effects of mortgage regulation in the more domestic parts of the market will limit huge amounts of growth.

In the country markets, the price gap remains, and growth will be reliant on wealth moving out of the capital into the commuter zone. Beyond here, it will be local economic drivers supporting prices.

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