Prime central London shows signs of springtime momentum

Lower asking prices and a stamp duty deadline added a sense of impetus in March, says Tom Bill

Two trends drove demand higher for prime central London property in March.

The first was the April deadline for the new additional rate of stamp duty. As confirmed by Chancellor George Osborne in the March Budget, buy-to-let investors and second-home buyers will pay an extra three percentage points of stamp duty from April this year.

The incentive to act before April was one of the reasons Knight Frank sales volumes in March exceeded last year’s figure. This bucked the trend of the first quarter of 2016, where volumes were flat in January and marginally down in February.

However, the other factor at play is a marked slowdown in the rate of annual growth over the last 18 months. It is the result of a series of tax changes and a preceding period of exceptional growth, which is also a topic that is increasingly covered by the media.

As a result, there is a growing recognition on the part of vendors that the prime central London property market is no longer on the upwards trajectory it was in the years following the financial crisis.

As vendors become more attuned to current market conditions and adjust asking prices, the effect is to drive demand. Asking prices are typically declining by in excess of 10% to attract price-sensitive buyers.

Annual price growth in March was 0.8%, which is the lowest figure since October 2009, when a -3.2% decline was recorded as the market found its feet following the collapse of Lehman Brothers.

However, as the map on page 2 shows, growth is increasingly polarised. In higher-value western areas around Hyde Park, recent tax changes have had more of a dampening impact. Meanwhile, the opposite is true in traditionally lower-value markets including Islington and the City & Fringe.

As a result of this polarisation, Knight Frank forecasts a -2% decline in western markets and 5% growth in markets east of Mayfair and south of the River Thames in 2016.

Tom Bill, Knight Frank’s head of London residential research, comments:

“The incentive to act before April was one of the reasons Knight Frank sales volumes in March exceeded last year’s figure. This bucked the trend of the first quarter of 2016, where volumes were flat in January and marginally down in February.”

“However, the other factor at play is a marked slowdown in the rate of annual growth over the last 18 months. It is the result of a series of tax changes and a preceding period of exceptional growth, which is also a topic that is increasingly covered by the media.”

“As a result, there is a growing recognition on the part of vendors that the prime central London property market is no longer on the upwards trajectory it was in the years following the financial crisis.”