Questions around the outcome of the October Budget have weighed on those involved in the prime central London market, overshadowing the benefits of lower mortgage rates felt by some buyers in outer prime markets.
Nick Maud, Director, Residential Research
August saw the first base rate cut since the start of the pandemic in April 2020 and while inflation currently hovers just above the government’s target of 2.0%, at least one more cut is expected before the year end. This has fed into a more competitive mortgage market, with approvals rising to a two-year high in August, providing relief to more debt-reliant buyers in the outer prime areas of London. In light of this, we have seen average prices increase by 0.2% on a quarterly basis across outer prime London and by 0.9% annually, a return to positive annual growth for the first time since December 2022.
Prices in the North & East region saw the largest overall increases in Q3, with both Hackney (6.3% annual growth) and Victoria Park (5.1% annual growth) performing particularly strongly. It is also notable that houses outperformed flats by some margin across this region, experiencing 5.3% annual growth compared with 1.3%. This reflects a moderating evolution of the ‘race for space’ that was observed in the immediate aftermath of the pandemic. Buyers continue to demonstrate an appetite for larger properties with private outdoor space, without necessarily committing to a full move away from the capital.
In Q2, we talked about some prime buyers adopting a wait-and-see approach ahead of July’s general election. But even with the result now certain, ‘those with the broadest shoulders’ have been given some reason to exercise caution for longer, namely the looming October Budget. The government has been active in managing expectations, and an increased tax burden for high earners is widely anticipated. Of particular relevance to prime central London is the proposed restructure of the ‘non-doms’ status, although this may now be more tenuous following concerns from the Office for Budget Responsibility.
Nevertheless, the autumn’s prelude has weighed on the prime London market. In our latest survey of Savills agents, 72% ranked an increased tax burden as the 1st or 2nd most prominent buyer concern, followed by general market uncertainty at 37%. In the highest-value markets, where we would typically expect a swift reaction to positive stimuli, growth has been more muted as a result. Consequently, average prices in prime central London have seen marginal falls of -0.7% on a quarterly basis and -1.1% on an annual basis.
The annual growth of sales for Q3 across London (net of fall throughs) diminishes with higher price points, according to data from TwentyCi. This further illustrates the caution in the prime London market ahead of October’s fiscal event. Sales between £500,000 and £1 million grew by 37%, an uplift that can be attributed to more mortgage-dependant buyers benefitting from improved rates. Meanwhile, sales between £2 million to £5 million saw far lower growth of 12%, while the £5 million plus bracket was not much higher at 13%.
The same source shows that activity has also been more muted at higher price points with an annual fall of -3% for new instructions between £1 million and £2 million and no change between £2 million and £5 million. The £5 million plus bracket did see new instructions grow by nearly 15% annually, although this figure is also down on both Q2 and Q1 of this year.
Returning to Savills’ prime London index, growth has remained equally subdued at the higher £2 million plus PCL price points with all brackets experiencing marginal annual falls, ranging from -0.5% between £3 million and £5 million to -1.6% at £10 million and above.
While the Budget represents a milestone for the new government, the first to be delivered by a Labour chancellor since March 2010, it will also mark a watershed in providing much-needed clarity for London’s prime housing markets. Both parties hinted at a changing tax environment for high earners in the run-up to the election, and while meaningful details have yet to emerge, there are already signs that the pain may not be as intense as first trailed. The independent Office for Budget Responsibility has flagged their scepticism about the non-dom reform’s potential to raise any money, causing Rachel Reeves to allude to a ‘pragmatic not ideological’ approach.
However, any further readjustment to the tax landscape should also be viewed in the context of relatively low property values (in historical terms) and London’s ongoing status as a cultural and economic hub. It is a city that continues to appeal to the globally mobile, and we are not seeing evidence of a glut of stock coming to market.
Elsewhere, demand from those more reliant on debt will continue as additional base rate cuts promote more favourable mortgage deals, particularly for spacious homes. Vendors will also need to remain realistic on the pricing and presentation of their property.
< View our latest Q3 2024 updates here.
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