Price growth in prime central London set to start growing again in 2018
Property prices in the prime central London housing market are set to continue to soften in 2017 but 2018 will be a year of growth, according to the latest analysis report, and see a rise of 10.4% by 2021.
Overall, affordability is set to be one of the biggest issues facing buyers in the capital, according to the London residential market outlook report from real estate firm Cluttons.
It points out that while the Bank of England continues to maintain base rates at a historically low level, this is shielding home buyers from the current affordability crunch they face but Cluttons predicts that interest rates will rise.
‘Our expectation is that base rates have the potential to see an upward inflection of 25 basis points in the second half of 2018, climbing to 1% by the end of 2019,’ the report says.
‘In addition to these economic pressures, rampant house price growth across London has pushed the home ownership dream beyond the reach of many, even though the previous government made a conscious commitment to driving up home ownership numbers through its flagship Help to Buy schemes,’ it adds.
Overall the report shows that the Royal Borough of Kensington and Chelsea remains the most expensive place to own a home in London, with average house prices standing at almost 50 times annual incomes.
At the other end of the spectrum, home values in Barking and Dagenham stand at roughly 12 times average annual household incomes.
In the prime central London market average prices were just over £3 million at the end of the second quarter of 2017 and despite a slowdown in the market, prices in some locations have continued to grow for a second quarter in a row with South Kensington up 2.1%, Chelsea up 2.4% and Knightsbridge up 1.3% compared with falls of 10.4%, 10% and 11.6% respectively last year.
Cluttons says that buyers have adapted to the increase in stamp duty at the upper levels introduced in 2014 but domestic and global economic ambiguity is having an effect on sales levels. It also points out that the number of motivated sellers in the market is limited and very few are looking to sell urgently.
Despite the growth in some boroughs, in central London as a whole prices fell for a fifth quarter in a row but at 0.5% compared to a fall of 0.8% in the first quarter of 2017. Vales are now 4.3% lower than this time last year compared to 5.6% lower in the 12 months to the end of the first quarter.
It is suggested that too many high value new homes are being built. Some 10% of new build stock remains unsold, much higher than the 1% recorded at the end of 2014 and the value of new homes coming on to the market has edged up.
‘At the end of 2016 an affordability threshold appears to have been breached with the average values of new build transactions declining, even in outer London locations. This suggests that the supply of high value, new build homes may now have exceeded domestic demand levels, once again underscoring the need for developers to address the affordability emergency gripping the capital’s housing market,’ the report explains.
‘While London remains a magnet for international buyers, there has been nervousness in some quarters from those concerned about the outcome of the ongoing Brexit negotiations and the overall health of the London housing market,’ it points out.
‘In general, however, the new build and off plan markets remain attractive to international buyers, especially those looking for second homes that offer state of the art modern amenities and those seeking buy to let investments. New build homes offer gross rental yields in the region of 4% to 5%, higher than the 2% to 3% commanded by secondary stock,’ it adds.
In core central London market outside of the prime sector prices are up 0.5% in the second quarter and 0.7% year on year. The report says that young professionals and families are particularly active in Islington, Wapping and Shad Thames.
‘We expect house prices in prime central London to continue to soften, ending 2017 1.8% down on last year. Assuming that the Brexit negotiations take on a clearer and firmer structure at the end of the two year negotiations, relieving uncertainty driven anxiety, we expect house prices in prime central London to strengthen by 2.8% by the end of 2018. Over the five year period between 2017 and 2021 we expect a cumulative increase of 10.4%,’ the report concludes.