Despite the unexpectedly clear-cut election outcome in May, the anticipated bounce in the housing market has been late to materialise in 2015, with the sales market being particularly slow in prime central London. We believe, however, that while concerns around the General Election limited transactions, particularly at the upper end of the market, a large part of the slowdown can be attributed to the stamp duty changes introduced in the latter part of 2014, which saw a significant rise in the tax for properties above Â£900,000.
Despite the unexpectedly clear-cut election outcome in May, the anticipated bounce in the housing market has been late to materialise in 2015, with the sales market being particularly slow in prime central London. We believe, however, that while concerns around the General Election limited transactions, particularly at the upper end of the market, a large part of the slowdown can be attributed to the stamp duty changes introduced in the latter part of 2014, which saw a significant rise in the tax for properties above £900,000.
Transactions below this threshold have been more buoyant, particularly as interest rates have remained low and mortgage lending has increased.
Moving into 2016 we expect market conditions to be similar, with stamp duty undermining demand for more expensive properties but low mortgage rates and wage inflation adding momentum at the lower end of the market.
Our expectation is that central London will continue to be affected by higher stamp duty, with buyers taking this cost into account when considering what they are prepared to pay per sq. ft. We believe, however, that this added burden will be progressively absorbed over the course of 2016 - albeit with fewer transactions - with the changes having little impact from 2017 onwards.
While this adjustment is taking place, we expect there will be a divide in the behaviour of domestic buyers and international investors. Domestic needs such as upsizing and proximity to schools and work will mean that residents will be forced to accept this cost or move further afield, whereas international property investors may wait until costs are more favourable to them. This is supported by the latest research from our Knightsbridge and Chelsea office, which shows that 81% of recent enquiries have been from domestic buyers.
Further headwinds for international buyers are the strengthening pound, particularly for European buyers, changes to the non-dom status and increases in capital gains tax.
Demand for flats under £2 million should see the greatest demand and we foresee the price of these growing by 2% compared to a flat market for both flats and houses above this threshold.
With the mortgage market remaining competitive and employment figures improving, we envisage that the Greater London property market will see price increases moving into 2016, particularly with a positive impact from lower stamp duty on properties below £1 million.
We expect price growth of around 6% for flats while house prices, most of which are priced above £1 million, may rise by a more steady 3%.
With the election out of the way, we expect that interest will resume in a move to the country to take advantage of the record price gap with London. The core market below £1 million will be the strongest performer in this market.
Again, low mortgage rates will play a role in encouraging those in the country to move up the ladder or take their first step onto it. As such we expect price growth of around 5% in the country market in 2016.
The private rental sector now represents 30% of the London property market and we expect rentals to continue to grow in importance, with a shortage of supply underpinning prices. We anticipate steady growth of 3-4% in the price of Greater London rentals, slightly above wage inflation. This will be supported by a reduction in supply as some landlords sell off secondary letting properties and consolidate their portfolios to offset the increased costs from the changes to tax allowances announced in the last Budget, as the buy-to-let sector remains on the government agenda affecting sentiment to invest.
In prime central London, prices will continue to be affected by the decline in demand that has troubled the area for the past two years, as tenants look for better value for money in zone two and beyond. Indeed, Winkworth’s Corporate Services department has noticed a considerable number of searches in these locations rather than the usual request for a prime central London rental. As such, we anticipate that prices will plateau with 0% growth.