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Insight & Opinion

Slight fall in prime London property prices

Author: Luke

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Prime London prices have fallen slightly during the first quarter of this year, showing that pre-election jitters and the prospect of higher taxes may be taking their toll on the top end of the market.

Prices were down 0.5% quarter on quarter following an average 2.6% price adjustment in the first quarter of 2014, according to data.

The stamp duty reform announcements had an impact, which while saving nearly 100% of homebuyers money, affected the higher end of the market as the rate on properties worth more than £925,000 has increased to 10% and on those worth more than £1.5m more than 12%. The move has cooled the £2m to £5m market especially.

However, Wimbledon estate agents, Robert Holmes said it’s not all bad news, research shows that prices in the prime London market should increase by 23% over the next five years, as long as there’s no further taxation of high value property. If the Labour Party were to form a government, they’d introduce a mansion tax on properties worth more than £2m; but this could end up being unworkable as there would be an array of tribunals clogging up the system.

Over the longer term, prices in the prime sector have seen excessive growth, over the last five years, prices in central London are up 30.8%, up by 30.7% in north west London, 38.1% in south west London and 45.6% in north London. Overall the prime market has seen growth of 36.6% over five years.

The analysis also shows that by contrast, there’s been a pick-up in the number of Londoners looking at the country market, with prices of homes below the £2m threshold in the prime regional markets outside of London showing year-on-year price growth. They rose by 1.1% in the first quarter of the year.

The prospect of interest rate rises also may be holding back demand. At the beginning of 2014, they were tipped to increase by March of this year, but the likelihood of such a rise next month is now extremely remote. Analysts had until last week predicted that an interest rate rise would not occur until late 2016, but the price of oil has crept up towards $60 a barrel, meaning that many are forecasting a rise this time next year. As well as this, the Russian rouble collapse will also hurt the market, meaning that an average priced property in a prime London borough in roubles is around twice as expensive as it was at the beginning of the year.

It’s evident that property in prime London is a great long-term bet, with a Department for Communities and Local Government study showing that homeowners in London and the south east of England have gained 97% of the increase in property values nationwide since 2010. The capital city holds more than a quarter of the nation’s property wealth, that’s £1.2tn. The research also showed that 30% of all property growth across England occurred in the London boroughs of Westminster and Kensington and Chelsea between 2010 and 2013 – so if you’re interested in purchasing a home in this part of town, there’s still a lot of room for growth over the long-term.

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