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Given the high levels of political uncertainty and rising taxes on high-value property transactions and second homes, it’s no wonder residential property transactions have taken a tumble compared to 2015. 

Over the past two years, UK property markets have faced threats of a ‘mansion tax’, a Scottish referendum on leaving the UK (ultimately voted down), increases in Stamp Duty Land Tax (Land and Building Transaction Tax in Scotland) on higher value transactions and an additional 3% tax was imposed on second homes.  And all that was just the precursor to June’s surprise UK vote to leave the European Union (‘Brexit’). 

-8.3%

 

Fall in transactions across the UK

Source: HM Revenues & Customs

-42%

 

Fall in transactions across London

Source: LonRes

While prices have been softening in some parts of the market, transaction volumes have borne the brunt of these headwinds. HM Revenues & Customs recently reported an 8.3% fall in residential transactions across the UK compared to the same period in 2015 and LonRes recently reported that transactions in London were down a staggering 42% from a year earlier.

Average prices in London have changed very little over the past 12 months, according to LonRes. The London property data and analysis firm reported that in prime central London average prices for the second quarter of 2016 were 0.5% lower than the year before, while prime properties were up 1.8% in greater London and 0.6% in London’s ‘fringe’.

Buyers in London are paying an average of 10% less for homes priced at £2 million or more compared to 2014

Source: LonRes

Compared to the peak of 2014, LonRes reported that buyers in London are now paying an average of 10% less for homes priced at £2 million or more and 6% less for homes under £2 million. Philip Eastwood, London Head at The Buying Solution, the buying arm of Knight Frank and one of the firms on Coutts’ panel of buying agents, noted that tax increases have played a large role in bringing prices down from the 2014 peak, with purchasers “looking for the burden of the extra costs to be shared with vendors”.

Buyers in London are paying an average of 6% less for homes priced under £2 million compared to 2014

Source: LonRes

A divergence between buyers and sellers price expectations continues to put a strain on transactions, with London sellers asking 2014 prices. According to Eastwood, a number of properties have been withdrawn from the market by private sellers who have already reduced asking prices and “are in the position of being able to ride out the storm.” In addition to increased taxes, buyers are using uncertainty around Brexit as a point of negotiation.

LonRes reported that properties sold in Q2 2016 in prime central London achieved an average of 90.9% of initial asking price, while Prime London achieved 91.5% of initial asking price and prime fringe achieved 94.7%. Prices achieved versus asking price have been trending down since 2014, and while there may be further discounts we do not expect them to be significant. The fundamental lack of supply in London and the South East will provide a floor on prices and with transaction volumes being so low, something will have to give. One exception to this appears to be the new build market above £2m in London.  Some areas were already suffering from significant oversupply and the concern is particularly acute where there are a large number of homogenous apartments being built in the same location.

LonRes Location Description
Prime central london SW1X, SW1W, SW1A, SW3, SW7, SW10, W1K, W1J, W8
Prime london NW1, NW3, NW8, SW1P, SW1V, W1T, W1H, W1U, W1G, W1W, W2, W11, W14
Prime fringe SE1, SE11, SW4, SW5, SW6, SW11, W4, W6, W9, W10

Overall, we believe buyers who have put their search on hold are likely to be tempted back into the market by the very slight softening of prices since the 2014 peak.

Douglas Crawford, Head of Structured Lending at Adam, said that “although the effects of Brexit on the residential property market will take some time to filter through, lenders will continue to be open for business and to support clients.”

If you require further information regarding the residential real estate service we offer, please contact Katherine O'Shea.

  • Housebuilders' sentiment

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    Real estate perspective: housebuilders' sentiment Housebuilders’ sentiment is a key component of overall confidence in the property market. While economic growth is a key determinant of housing demand and many indicators point to a short-term slowdown in the overall UK economy, there are some tailwinds.
  • London and the Home Counties

    • Insight
    • Real Estate
    02 Sep 2016
    Real estate perspective: what next for london and the home counties? The effects of the vote to leave the EU on UK property will be difficult to predict until the negotiations with the EU are known, but short-term volatility can be seen across the industry.

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