British buyers emboldened in London property market

  • Overseas buyers account for just 21% of all London sales, as tax changes breed new caution
  • Overall buyer demand in London up 4% during Q3, while supply of properties falls 5%
  • Prime London property values up 0.3% in Q3, yet still 0.8% lower than a year ago
  • Prices expected to remain stationary until December, but 4% rise predicted next year
  • Premium paid for Prime Central property shrinks, down from 98% in 2013 to 74%

Domestic buyers have risen to a new level of prominence in the London property market, according to Marsh & Parsons’ latest London Property Monitor.

During Q3, 79% of property purchases were made by domestic UK buyers, up from 75% a year ago. Sales activity from domestic buyers has surged forwards to fill the gap left by overseas buyers and investors, who have been left more cautious by the strong sterling, stricter Government measures on non-domicile status, and heftier Stamp Duty for higher value purchases.

As a result of this new hesitation, domestic mortgage buyers and first-time buyers have become more prominent in the London market, with the proportion of mortgage buyers in Prime London soaring from 53% in Q2 to 65% in Q3.

At the same time, overseas and foreign nationality buyers accounted for just over a fifth (21%) of all Prime London property purchases during Q3 2015, which has fallen quarter-on-quarter, and is also down from 25% of all sales during the third quarter of 2014. This pattern is also being mirrored in Prime Central London, traditionally favoured by overseas investors, with the proportion of foreign buyers standing at 32%, down from 34% in Q2 and 37% a year ago. The investor share of the market has also dipped in Prime Central London over the past three months. Investors accounted for 35% of all Prime Central London sales during Q3, a considerable drop from 42% in Q2.

Yet with domestic buyers stemming this shortfall, overall demand for Prime London homes has grown in the three months to September 2015, and the number of registered buyers has climbed 4%.

Combined with a 5% drop in the supply of properties available on the market, and buyer competition is building as these trends diverge. There are currently 14 buyers for every available property for sale in London, increasing from 12 in Q2, and 10 at the end of 2014.

Peter Rollings, CEO of Marsh & Parsons, comments: “The London property market has had to grit its teeth and bear the brunt of some rather trying taxation changes in recent months. At the high-end buyers are at the rock face of the new steeper stamp duty, and from overseas the strength of sterling, and government encroachments on nom-dom status make investing in the London property market seem daunting. This has cast some shadows over the capital, but the millions of Londoners who live and work in the city have acclimatised much more quickly to the property taxation changes, and have risen up to fill the void left by overseas purchasers and investors. We’re noticing longer purchase chains than ever as domestic buyers really start to dominate the market, and demand is really putting a strain on supply. This should ensure that London houses prices and sales activity continue their ascent into 2016.”

After a period of stalling prices from October 2014 to March 2015, house price growth in London is back in positive territory and continued a steady recovery throughout Q3, with average property values climbing 0.3% in three months.

After experiencing such rapid house price growth in 2014 the market in Outer Prime suburbs is adjusting, and as a result, Prime Central areas of London are now seeing the strongest house price growth across the capital, with average property values boosted by 0.4% in Q3. But taking into account the much faster gains in Outer Prime London over the last two years, the premium a homebuyer can expect to pay to live in Prime Central areas is in long-term decline. Since Q3 2013, house prices in Outer London have soared 12.6% (equal to £131,000), and this has narrowed the price gap significantly between homes in prime Central and Outer London.

The price premium of buying property in Prime Central London over Outer Prime neighbourhoods now stands at 74%, but this has shrunk from 98% two years previously.

One-bedroom homes outperforming larger properties

One-bedroom homes are the most sought-after in Prime London, either as a starter home, buy-to-let or pied-a-terre, and have witnessed the largest increases in price in the past quarter. Average prices for a one-bedroom property have risen 3.5% since Q2 2015, or £21,240 in cash terms. The trend is even more pronounced in Prime Central areas, with smaller one-bedroom properties appreciating in value by 5.9% in three months.

Larger family-sized properties have experienced slower price growth in Q3, with the typical four-bedroom home increasing in value by just 0.5% in the three months to September 2015.

Peter Rollings, concludes: “The sudden price surge in Outer Prime areas over the past two years has really come to challenge what we consider the Prime property heartland of London, and the reality now is that the epicentre of the capital’s housing market is expanding outwards. Properties in the traditional Prime Central stronghold will ultimately always hold their value, but after 24 months of relative price stagnation, it requires much less of a price leap than it did a few years previously, after such stellar price rises in the Outer areas of the city. We expect property further out from the centre to make the strongest gains before the end of the year, mirroring the trend evident across the capital as a whole. Properties at the lower end of spectrum have accumulated the strongest price momentum, and this is unlikely to dissipate.”

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