Prices across the prime housing markets of London fell by just 0.3% during the third quarter of 2019 as buyer and seller expectations narrowed.

In North West London, prices of prime property in Hampstead & Highgate and Belsize Park held their own, while prices in Primrose Hill, Regent’s Park and St John’s Wood fell modestly. This means that, on average, prices fell by 0.6% in the three months to the end of September.

The limited scale of these recent price falls reflects the prolonged period during which buyer and seller price expectations have realigned – adjusting to both a higher tax environment and substantial political uncertainty.

Across prime London, the biggest correction in prime house prices has occurred in central London. Here, prices peaked in mid-2014. Since then, price adjustments for different property types, sizes and locations have converged at around -20%.

In comparison, prime property prices in other parts of the London market peaked a little later and have fallen to a lesser degree. More specifically, prime prices in the wealth belt that runs from St John’s Wood to Highgate have fallen by 10.4% since they peaked in September 2015. However, this masks variation between property types, with the largest houses looking increasingly good value in a historic context (see ‘Price variation’ below).

PRICE VARIATION

The extent of price changes in the area running from St John’s Wood to Highgate is influenced by size among other factors. For two-bedroom prime properties, values have fallen by 8.1% over the past five years. During the same period, properties of six bedrooms or more have fallen by 21.8%. These properties offer an alternative to central London for domestic and international ultra-high-net-worths and now look increasingly good value, especially for overseas buyers.

A SHIFT IN DEMAND AND SUPPLY

While political uncertainty is unsurprisingly seen as the main factor holding back the market, our agents say that a lack of stock is now regarded as a bigger constraint than taxation. This reflects the fact that the current climate has also led to fewer prime properties being brought to the market.

This position has not been helped by speculation of a cut in stamp duty, which 71% of our agents across the prime markets of London believe has had an impact on sales volumes. With applicant numbers increasing, this raises the prospect of an imbalance in demand and supply once those potential buyers decide the time is right to re-enter the market.

Outlook

We expect the sense of caution in the market to continue for the rest of the year, as buyers wait to see whether the current government will be able to negotiate a deal with the EU before the end of October, or forced by parliament to seek a further extension of Article 50. The prospect of a general election by the end of the year is likely to add to this. However, given the extent to which prices have already corrected, we do not envisage significant price adjustments during this period.

Current polling shows that the election of a hard left majority government would require a substantial swing in voting intentions. This limits the risk of a dramatic change in the political environment which might significantly alter the attractiveness of London to high- and ultra-high-net-worth individuals. But only once this risk has passed entirely do we expect the seeds of recovery to be planted.

We also believe that cuts to stamp duty that were mooted by Boris Johnson in his leadership bid cannot be relied upon. First, it’s uncertain whether the Conservatives can deliver a clear majority. Also, any government is going to be reluctant to put at risk receipts which we estimate to be between £2 billion and £4 billion, at a time when it will be looking to increase spending to support the economy.

Deal or no deal, what is needed to stimulate market demand is greater certainty over the way forward. That is likely to coincide with a bottoming out in the value of sterling which should act as a trigger to unlock pent up demand. Meanwhile, the market relies on pragmatism from buyers and sellers alike.

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