House prices are set to fall hard in London, Savills has predicted, with Stamp Duty rather than Brexit to blame.
The firm says that in prime central London, house prices will tumble 9% this year, after falling since 2014 (down 0.4% in 2014 and down 3.3% last year).
House prices in other prime London areas did not fall in the last two years but will dip 5% this year and 1% next, says Savills.
The firm is predicting flat house prices in prime central London next year and the year after, before 8% growth in 2019.
In other prime London markets, Savills sees flat growth in 2018, followed by 4% growth in 2019.
Savills has revised its five-year forecasts for London, saying that its researchers do not believe the current situation will mirror the crash of 2008, but could be reminiscent of 2002 when the market was hit by a stock market downturn.
The firm says: “The prime central London markets, where values average around £4m, have been most impacted by changes to Stamp Duty since December 2014. Prices were 8.1% below their 2014 peak by the time of the referendum, including falls of 2.2% in the first six months of this year.
“As a result, Savills believes that further price adjustments in the order of 6% or 7% will be required to secure sales as buyers wait to see how Brexit negotiations proceed, and the impact on the UK and London economy becomes clearer, although the currency play is a clear boost to international buyer interest.
“Prime central London values are therefore now expected to close 2016 down 9% and stabilise for the next two years.
“The lower value, more domestic outer prime London markets, where the average house price is £2m, were less impacted by the December 2014 Stamp Duty increases and values rose 2.3% in 2015.
“However, a further 3% surcharge on additional homes combined with pre-referendum uncertainty to suppress growth in the first six months of this year and contributed to reduced fluidity in the market.”
Lucian Cook, Savills head of research, said: “The summer market was slow but certainly not moribund, and the currency advantage brought international buyers back into the market.
“We now need further small adjustments to bring buyers back to the table in greater numbers and early signs from the autumn market are that committed sellers have adjusted their prices by between 5-10%.
“The current situation is reminiscent of the 2002 to 2004 post-bull run period when a less significant financial shock combined with an uncertain geo-political backdrop. Prices then fell a total of 10%.”
Another London agent, Richard Barber of WA Ellis, part of the JLL Group, was more upbeat, saying that last week his firm received over £35m of offers for properties in Knightsbridge, all within 5% of asking price.
However, he said that vendors had to be “prepared to sell in line with the current market”.
Knight Frank, in a new residential review of the London market, said that Stamp Duty increases have had a “sizeable” impact on demand and transactions, with “few signs” of transactions increasing in central London.
Comments (5)
My wife works for Savills, albeit on the finance side and has noticed a significant jump in foreign investment due to the drop in the GDP.
East London will continue to rise in my opinion, with Manor Park/Forest Gate areas will see the next bubble due to neighbouring towns such as Leyton, Walthamstow, Stratford, Wanstead etc noticing price increases to an astronomical level so the ripple effect will spread to those towns – again IN MY OPINION.
Problem with central London/City is that the rental prices are too high also, and what with the stamp duty changes for investors there’s no appeal to buy there, unless it’s a “deal”.
Price drops are always deemed as a bad thing, but peoples wages haven’t really increased but the cost of living and everything else has, so a price correction is definitely needed.
Do away with the 2nd property tax which was brought in so that people would sell their houses and move on, but this has caused a negative effect as people deem these properties as their pension so wish to keep them and rent them, as you get sweet FA for saving and again the BTL investor stamp duty rises has also caused the market to slow, thus meaning fewer rental properties which will inevitably push rents up too.
I do wonder about these so called “experts” who enforce these changes which they feel is for the greater of good, but I doubt any of them have actually worked within the property industry to know what’s actually needed.
(apologies for the long post)
Let’s hope they do drop. The current prices are ridiculous. An increasing number of people are getting priced out of having a roof over there head. Is this not the main point of a property in the first place!
Perspective from the coal face is required here, we saw PCL house prices increase by circa 35% in the 2nd half of 2013 through to April 2014, obviously unsustainable. Over the last two years we have seen a natural correction, which perhaps has been compounded by two UK referendum’s, a General Election and SDLT changes.
In my humble opinion we are at the bottom of this particular property cycle. I see no great movement with prices in the short to medium term, in light of everything else that has happened over recent months, perhaps a period of calm in the UK housing market could be seen as healthy.
Some areas of London could easily fall back more than 20% since their peak, but it has more to do with a natural market adjustment than Brexit. London and the South East have seen prices influenced by compound errors caused by online valuation systems.
Have I not stated on many occasions the south east and London market is over heated, the foreign buyers are no longer active and the market will be flat until the domestic market can afford the prices, which will be through wage inflation (or everyone winning the lottery!) ?
I believe I have.