PRIME CENTRAL LONDON SHORT-TERM DRIVERS

We anticipate that the abolition of ‘non-doms’ status and the additional 2% stamp duty surcharge will result in further downward pressure on prices in the short-term. However, the scale of falls will be limited by where prices already sit in an historic context, cuts to the Bank of England base rate and ongoing safe haven flows of wealth, given underlying geopolitical uncertainty. We also anticipate that the risk of a flood of stock hitting the market will be limited by the desire of those becoming non-UK resident to retain a base in London.

Over the longer term, we believe that a gradual recovery will be underpinned by ongoing domestic and global wealth generation, albeit that the cumulative effect of changes in the tax and regulatory environment are likely to reduce the prospect of a pronounced bounce in values.

OUTER PRIME LONDON SHORT-TERM DRIVERS

We expect values to be more resilient in a market where the cost and availability of mortgage debt are more important drivers of demand. Progressive cuts in the Bank base rate are expected to increase prospective purchasers’ buying power. That is likely to be offset by the impact on the family house market of private school fees with VAT applied, which will mean a more cautious approach to upsizing.

Furthermore, short-term pressure on values in prime central London will mean these other prime markets will not benefit from the ripple effect which is usually a feature of the market in the early stages of a recovery. As a result, we expect them to underperform the wider London mainstream housing market over the next 5 years.

PRIME REGIONAL SHORT-TERM DRIVERS

The prime regional housing markets are similarly likely to benefit from falling debt costs. VAT on private school fees is expected to constrain buyers’ budgets but may also pull some more demand from those relocating from London, who want to take advantage of the price differential in the commuter zone (and beyond). A gradual increase in downsizing is expected to bring a little more liquidity into the market. Meanwhile, the recent increase in the SDLT surcharge for additional homes is likely to mean prices in second home hotspots take longer to enter the recovery phase, with restrictions on IHT reliefs, such as agricultural and business property relief, tempering the appeal of larger landed estates, without significantly changing the balance between supply and demand.