Marsh & Parsons is predicting that London prime property values will rise 3% in 2016 compared to 5% growth along the fringes of the capital.
The market below £1.5m is forecast to be the main driver of price growth in the coming year, as Stamp Duty Land Tax (SDLT) continues to back the wealthiest segment of the London property market.
In December 2014, the Chancellor reformed SDLT which saw a scrapping of the old slab structure. It saw the top rate of tax increase which meant wealthier property buyers would shoulder the impact of higher fees.
In south west London direct transport links into Bank on the Northern line have meant buyer demand has quickly spread from Balham to neighbouring Tooting. In the north west, Queen’s Park is providing an alternative home for those priced out of North Kensington and Little Venice, and is well serviced by the underground and rail connections directly into Euston.
With a top rate of Stamp Duty of 12% now in place, the highest tiers of the London property market have been severely tempered in recent months as buyers struggle to absorb the additional transaction levy.
Research by Halifax found that the ‘tipping point’, the price at which purchasers of properties become worse off because of the changes, was £938,000.
Sales just below that point, over £925,000, in the first six months of 2015 were 10% lower than in the first half of 2014. Sales above £1.5m, which are more affected by the changes, have seen a bigger impact with a 20% decline; twice the size of the fall in the wider market.
Marsh & Parson’s research showed that in 2015, 59% of London property sales were for homes below the £937,000 marker, while purchases above this price threshold account for 41%, as the top of the market slowed down.
The agent warned that in 2016 sellers would have to adjust their price expectations to make their properties more competitive and attractive. But properties that are priced realistically will still sell well and quickly, it said. Its data showed that at the start of this year, London homes for sale were typically achieving 95% of their asking prices which has climbed throughout the year to stand at 97% as of November 2015.
Peter Rollings, chief executive of Marsh & Parsons, said: “The Chancellor’s Stamp Duty changes have certainly dulled the London housing market of late, and whilst 2016 will see a return to growth it will be rather lack-lustre. There now exists a fundamental unevenness between sellers who want to sell their properties at the prices they were at six months ago and buyers who are seeking recompense for the increased Stamp Duty levelled at them.
“It’s already started but it’s going to take a while to iron out these differences and in the meantime the brightest spots of house price growth will be in places where average house prices are climbing from a lower base.”
The majority of London house price growth is predicted to appear in the first quarter of next year as a new influx of buyers start looking for properties in January. The first quarter of the year typically experiences higher levels of buyer demand than others but is forecast to be even stronger as George Osborne’s buy-to-let Stamp Duty premium takes effect from April 2016.
The Chancellor announced a 3% SDLT premium for investors purchasing buy-to-let properties or those looking for a second home which is expected to cause a buying frenzy in the first two months of next year.
In January 2015, Marsh & Parsons recorded a 14% month-on-month jump in buyer registrations, and it is expected that this pattern will continue in 2016. Demand across Q1 2015 as a whole was up 19% on Q4 2014.
As of December 2015, there were 13 buyers per every available property on the market, and this has risen from 10 a year previously. As demand continues to outstrip substantially supply, London house prices will only move upwards in 2016.