Prime Central London breathes a sigh of relief as Chancellor omits anticipated hike in mansion tax

5 December 2012, In today’s Autumn Statement, Mr Osborne outlined further austerity measures with fiscal consolidation extended until 2017/18, together with the official admission of missing the fiscal rule. The Chancellor chose against raising taxes on residential property and instead targeted pension relief.

Despite the mounting uncertainty surrounding Government policy, both international, and more recently, domestic investors, have continued to actively acquire property in the capital, which is still perceived to be one of the key residential markets in the global arena.

Indeed, domestic buyers have reactivated their interest in Prime Central London (PCL) during recent months, largely due to the resilient growth in value within the capital, which is in sharp contrast to continual reduction in values witnessed throughout the UK regional housing market.

Forecasts from Carter Jonas released today identify that realistically priced housing stock in PCL will continue to sell well, and within an average time span of six weeks. This trend is forecast to continue into 2013 with accurate pricing continuing to remain fundamental to market dynamics.

Sales activity within PCL is forecast to increase in 2013 as the market continues its immunity to the wider economic context. That said, a degree of caution will continue and prime product is forecast to witness growth rates of less than 5% in 2013, whilst average values are expected to hold firm in the year ahead.

The potential introduction of additional taxes was unlikely to have had a material impact on these forecasts, although may well have resulted in a glut of activity before their introduction.

Tim Macpherson, head of London Residential at Carter Jonas comments, “In the current climate, international buyers are responsible for in excess of 60 per cent of all PCL residential property sales over £2m and it is imperative to the wider economy as a whole, that we continue to attract such investment.”

Outside of London and the Home Counties, a lengthy recovery in house price growth is predicted.
London values (based on a 2,500 sq ft three bedroom townhouse in Marylebone) have risen by 33% over the last 18 months which is in sharp contrast to the farmhouse market which witnessed a 7.8% reduction over the same time period. The pricing gap between the capital and the regions is now perceived to be at its largest and has resulted in families delaying the move to the country in order to take advantage of rising property values witnessed across the prime London residential markets.

Jasper Feilding, head of London Country at Carter Jonas comments “The increase in stamp duty from 5% to 7% for properties over £2m introduced in the last budget is still proving to be a considerable hurdle for vendors trying to sell properties being marketed with guide prices in the low £2m bracket in the country house market. Houses that pre-budget might have easily achieved a figure slightly in excess of £2m are becoming increasingly difficult to achieve that figure as a direct result of the 2% increase. We are now seeing a pricing correction in the £2-£2.5m market of anything between 7-10%. The absence of a further tax on property is welcomed”.

Given that a prolonged economic malaise is forecast, employment concerns are likely to continue to limit the migration of young families out of the capital in search of lifestyle benefits, which have been a key component of the country house market in recent years.
As a result, values in the country house market are predicted to marginally fall between 2-5 % in 2013. “However, despite the lingering burden of economic woe, we are anticipating increased activity in the country house market during the spring,” reassures Catherine Penman, head of Research at Carter Jonas. “With the realisation of an extended period of austerity, as outlined in today’s Autumn Statement, the expectations of vendors and purchasers, in terms of market value, will realign and rather than procrastinate in the anticipation of any value improvement, they will settle for a lifestyle choice outside of London.”