Your comprehensive guide to the all new ‘Upstairs Downstairs’ London property market

20/09/2016

Three months down the line, enough time has passed to properly assess the impact of Brexit on the London property market.

 

Curiously, Knight Frank’s latest London property survey says it may have been stamp duty which proved the bigger value destructor, with sterling’s depreciation post the Brexit vote actually helping to stymie prices in prime localities.

 

From the property specialists:

 

'

The single biggest factor that curbed demand in the 18 months prior to the referendum was the increase in stamp duty in December 2014, widely seen as a political manoeuvre by the former Chancellor George Osborne ahead of a general election.

 

This measure has loomed larger than any other over the market, compounded by the introduction in April this year of the additional rate of stamp duty equating to three percent for buy-to-let properties and second home buyers. The result of this two-year slowdown is that vendors were already adapting to the new pricing environment and in many cases Brexit became a trigger to make overdue reductions to asking prices.

 

In the two months since the vote, while many buyers have sought asking price reductions the majority of sellers are adopting a wait-and-see approach though low to mid-single digit declines are common. There is no uniform picture however, and where asking prices were set at realistic levels before the EU vote, transactions have been achieved at or around the asking price.

 

Furthermore, currency is playing a more significant role, with the weaker pound spurring interest from buyers denominated in foreign currencies. The volatility of sterling in the past few weeks is leading many to speculate that overseas interest in the London market will filter through more strongly when there is greater confidence that the pound has hit its low point.'

 

But are the stamp duty changes skewing the market in unexpectedly harmful ways? According to Knight Frank, there is evidence something strange is happening. Typically, they note, rising transactions in central London are followed by declines as activity and house price growth spreads to outer boroughs in a trend known as the ‘ripple effect’. The centre looks relatively more affordable once the boroughs rise in price, driving further increases. But this is not happening this time around, which could be down to the stamp duty effect. As the authors note:

 

'Transactions in Westminster, Camden, Islington, Hammersmith & Fulham and Kensington & Chelsea all fell by an average of more than 5% per year over the five year period to March 2016. It is the first time this magnitude of decline has been registered in this many London boroughs since Land Registry records began in 1995. If the pattern persists, the risk is that demand and property prices in outer boroughs will become further inflated and more susceptible to future price instability.'

 

Some might say that was precisely the point of the legislation — a tax on the mega rich. But we guess Knight Frank’s counterpoint might be that without relative price perception boosting central London in the aftermath of a’ripple effect’ splurge, the risk is that the areas normal people can still just about afford to buy or rent will get bid up to even greater extremes.

 

Knight Frank also notes that government increasingly relies on London for its stamp duty revenue, to the sum of £6bn a year. But while London’s contribution rose to 44.6 per cent in the year to March 2016 from 41.5 per cent a year earlier, London only accounted for 12.3 per cent of transactions, down from 12.7 per cent. That’s problematic for another reason:

 

'The picture emerging is one of growing fiscal reliance on areas where transactions are shrinking at the steepest rate.'

 

 

Reference: http://ftalphaville.ft.com/2016/09/20/2175456/your-comprehensive-guide-to-the-all-new-upstairs-downstairs-london-property-market/

 

Image: http://ftalphaville.ft.com/2016/09/20/2175456/your-comprehensive-guide-to-the-all-new-upstairs-downstairs-london-property-market/

 



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