| Domestic buyers have risen to a new level of prominence in the London property market as overseas purchasers are being put off by current property tax levels, it is claimed.
In the third quarter of this year some 79% of property purchases were made by domestic UK buyers, up from 75% a year ago, according to the latest London Property Monitor from March & Parson.
The firm says that sales activity from domestic buyers has surged forwards to fill the gap left by overseas buyers and investors, who have been left more cautious by the strong sterling, stricter Government measures on non-domicile status, and heftier Stamp Duty for higher value purchases.
As a result of this new hesitation, domestic mortgage buyers and first time buyers have become more prominent in the London market, with the proportion of mortgage buyers in Prime London soaring from 53% in the second quarter to 65% in the third quarter.
At the same time, overseas and foreign nationality buyers accounted for 21% of all prime London property purchases during the third quarter which has fallen quarter on quarter, and is also down from 25% of all sales during the third quarter of 2014.
This pattern is also being mirrored in the prime central London market traditionally favoured by overseas investors, with the proportion of foreign buyers standing at 32%, down from 34% in the second quarter and 37% a year ago.
The investor share of the market has also dipped in the prime central London market over the past three months. Investors accounted for 35% of all prime central London sales during the third quarter, a considerable drop from 42% in the second quarter.
Yet with domestic buyers stemming this shortfall, overall demand for Prime London homes has grown in the three months to September 2015, and the number of registered buyers has climbed 4%.
Combined with a 5% drop in the supply of properties available on the market, and buyer competition is building as these trends diverge. There are currently 14 buyers for every available property for sale in London, increasing from 12 in Q2, and 10 at the end of 2014.
According to Peter Rollings, chief executive officer of Marsh & Parsons the strength of sterling and government encroachments on nom-dom status make investing in the London property market seem daunting for foreign buyers.
‘This has cast some shadows over the capital, but the millions of Londoners who live and work in the city have acclimatised much more quickly to the property taxation changes, and have risen up to fill the void left by overseas purchasers and investors,’ he pointed out.
‘We’re noticing longer purchase chains than ever as domestic buyers really start to dominate the market, and demand is really putting a strain on supply. This should ensure that London houses prices and sales activity continue their ascent into 2016,’ he added.
The research also shows that after a period of stalling prices from October 2014 to March 2015, house price growth in London is back in positive territory and continued a steady recovery throughout the third quarter, with average property values climbing 0.3% in three months.
After experiencing such rapid house price growth in 2014 the market in outer London prime suburbs is adjusting, and as a result prime central areas of London are now seeing the strongest house price growth across the capital, with average property values boosted by 0.4% in the third quarter.
But taking into account the much faster gains in the outer prime London market over the last two years, the premium a home buyer can expect to pay to live in prime central areas is in long term decline.
Indeed, since the third quarter of 2013, house prices in outer London have soared 12.6%, equal to £131,000, and this has narrowed the price gap significantly between homes in prime central and outer London.
The data also shows that the price premium of buying property in prime central London over outer prime neighbourhoods now stands at 74%, but this has shrunk from 98% two years previously.
One bedroom homes are the most sought after in the prime London market, either as a starter home, buy to let or pied-a-terre, and have witnessed the largest increases in price in the past quarter. Average prices for a one bedroom property have risen 3.5% since the second quarter of 2015, or £21,240 in cash terms. The trend is even more pronounced in prime central areas, with smaller one bedroom properties appreciating in value by 5.9% in three months.
Larger family sized properties have experienced slower price growth in the third quarter, with the typical four bedroom home increasing in value by just 0.5% in the three months to September 2015.
‘The sudden price surge in outer prime areas over the past two years has really come to challenge what we consider the prime property heartland of London, and the reality now is that the epicentre of the capital’s housing market is expanding outwards,’ said Rollings.
‘Properties in the traditional prime central stronghold will ultimately always hold their value, but after 24 months of relative price stagnation, it requires much less of a price leap than it did a few years previously, after such stellar price rises in the outer areas of the city,’ he explained.
‘We expect property further out from the centre to make the strongest gains before the end of the year, mirroring the trend evident across the capital as a whole. Properties at the lower end of spectrum have accumulated the strongest price momentum, and this is unlikely to dissipate,’ he added.