With concerns over the 2015 General Election and ‘mansion tax’, monthly prime central London prices are stagnant for the first time since November 2010, says Knight Frank, but rental yields have hit a three-year high
For the first time in four years, central London prime property prices are flat, as uncertainly over the 2015 UK election and the introduction of ‘mansion tax’ dampens foreign demand, says a leading agent.
The fact that the market had zero growth in October packs up a prediction that Knight Frank made more than a year ago – and it expects central London prices to be flat at least for the first half of 2015.
But rental returns rose 0.5% in October to an annual rise of 2.6%, which is a two-year high, and rental yields recorded their biggest monthly increase in more than three years, rising to 2.9% in October.
Commenting on the real estate sales market, Tom Bill, Head of London Residential Research, says, “It is worth emphasising the gradual nature of the slowdown, which is typical after such a strong run.
“While we expect zero growth in central London prices throughout 2015, if the prospect of a mansion tax recedes after May, we could see modest positive growth in the second half of the year.”
The positive run began in November 2010, the same month Ireland became the second European country after Greece to receive bailout money.
“Ireland has since left its bailout programme and the economic risks that drove buyers into the safety of London property have been superseded by political risks that have created a mood of caution. As a result there is growing evidence that asking prices are having to adjust to more subdued market conditions,” says Mr Bill.
The impact of any ‘mansion tax’ is difficult to assess, as plans are sketchy, but as prices stagnate in prime central London, it seems a certain level of risk is already priced in.
Annual price growth has slowed from a peak of 12.6% in November 2011, to 6.5% in October this year, which is largely due to the mansion tax and uncertainty relating to other tax changes.
Although prime central London prices are set to pick up after the election, growth will be more subdued than previous years, at around 22% in total from 2015-2019, compared to the 40% from October 2010-2014.
In the last four years, price growth has outperformed the UK mainstream market by 25%, while the price of gold, which is often considered a ‘safe haven’ for investors, has fallen 9%. Growth of 56.4% was strongest in the £1million-£2 million price bracket.
In October, rental values in prime central London rose for the eighth successive month in October and demand in the third quarter of 2014 exceeded the same period last year, with agreed tenancies up by a quarter and new tenancies up by one-third.
With UK economic data remaining mixed, the prime central London rental market has still not fully recovered and although the number of new prospective tenants and viewings have rose in the year to October , the number of tenancies started is likely to end the month down, reflecting the hesitant nature of the recovery, says Knight Frank.
In a further move that may dampen demand in the short term, mortgage lenders have cut rates as the likelihood of an imminent interest rate rise recedes. Lenders are also attempting to bolster their loan books after a slower period that followed the introduction of stricter lending criteria earlier this year.
By Adrian Bishop, Editor, OPP Connect