Prices for luxury homes in central London are forecast to fall 4% this year and will flatline for nearly two more years as Brexit uncertainty and tax changes weigh on the market, according to Savills.
The upmarket estate agent is predicting that prices will start to recover towards the end of 2019, rising by 2%, with a stronger bounceback of 8% in 2020. The recovery will take a year longer than the firm previously expected. It blamed heightened political uncertainty, with the “complexity of Brexit becoming much more apparent”.
Lucian Cook, the head of UK residential research at Savills, said: “Uncertainty fuelled by Brexit and a weakened government mandate since the June election means sentiment is fragile.”
Prices in central London have fallen by 3.2% in the first nine months of this year, and are 15.2% below their peak three years ago. Sellers are being forced to lower their prices: the number of properties worth £1m or more where the asking price has been cut nearly doubled in the first half of 2017 from a year ago.
Savills is forecasting 20% growth in central London luxury house prices over the next five years, which is less than half the 52% long-term average seen between 1979 and 2014.
“That growth is more subdued than what we’ve seen previously coming out of historic downturns,” said Cook. “London has pretty much matured. It might lose a few jobs in financial services.”
He also pointed to greater exposure to capital gains tax and inheritance tax for overseas buyers, on top of increases in stamp duty.
Savills expects the City to lose about 20,000 jobs from its 350,000 workforce in coming years, but believes London will remain a key global financial centre and develop as one of several European hubs for the growing tech sector.
Savills estimates there were 394,000 properties worth £1m or more across the UK in 2016, down 3.4% from the year before, although the number has more than doubled in the past decade. Almost two-thirds of those homes are in London and a further 21% in the south-east. In Kensington and Chelsea in west London, almost half of all privately owned homes exceed the £1m mark.
Looking beyond the price declines at the top of the market, bloated London property prices have been fuelling an exodus from the capital. The number of people in their 30s who are moving out to the commuter belt or further afield in search of more affordable homes rose 27% in the five years to the end of June 2016, according to official figures.
Savills said the most popular locations included Elmbridge, St Albans, Spelthorne, Epsom and Ewell, Oxford and Cambridge, Brighton and Hove, and Bristol and Bath.
“Here, the price gap is key, particularly for Londoners looking for more space,” said Cook. “For example, while £1m will buy just over 1,200 sq ft of home in Wandsworth, it will get you around 2,000 sq ft in Sevenoaks and more than 2,400 sq ft in Bath.”
Demand from Londoners fleeing the capital is likely to fuel house price growth in the commuter belt, 30-60 minutes outside the capital, to 15% over the next five years, making it the area with the strongest price growth in the UK apart from central London.
Mortgage lending in August hit a one-and-a-half-year high, according to figures from UK Finance, the new trade body for the banking industry. Gross lending rose to £24.2bn, the highest since March 2016 when buy-to-let buyers rushed to complete before a hike on stamp duty, taking lending to £26.3bn. Before that, mortgage lending was last higher in April 2008.
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