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New signs of recovery in the capital

The most recent data from Land Registry has revealed that both the mainstream and premium sectors of Prime Central London have shown a recovery from price falls which followed the introduction of graduated Stamp Duty in Q4 2014.

The data, which was analysed by London Central Portfolio in conjunction with independent analysts Acadata, also found that the mainstream sector, where property is priced under the top stamp duty band and which largely represents buy to let property, has seen prices increase by 5.6% from the pre-ARSD peak.

This brings average prices to 15.6% above their high point three years ago, pre-Stamp Duty changes in 2014. The mainstream sector is now outperforming England and Wales which has seen growth of 7.1% over the same period.

According to London Central Portfolio, the premium sector has also seen a bounce back since the introduction of ARSD, resulting in growth of 7.0% over the last 12 months, although this is now tapering off. Having been most impacted by increased taxation, prices in this sector still remain 3.3% below their 2014 high.

A detailed analysis of price growth by decile has shown that both the mainstream sector (the bottom 60% of the market by value) and the premium sector (the top 40% of the market by value) have seen price growth over the last 12 months. This may signal a recovery from price falls and volatility following a spate of residential tax changes and Brexit uncertainty.

According to the research, PCL’s mainstream sector (under £1.24m), largely representative of the buy to let market, has seen price growth of 5.6% since 12 months ago, when prices briefly esculated before the introduction of Additional Rate Stamp Duty. This has brought average prices to £822,812, 15.6% higher than 3 years ago, before Stamp Duty was changed from a ‘slab’ system to a graduated one.

Naomi Heaton, CEO of London Central Portfolio, comments: “The mainstream buy to let sector in Prime Central London has experienced unusual volatility over the last two years, suffering from a number of tax changes aimed at cooling the sector. After a price fall immediately following the change to a graduated system, prices fell again in 2016 when the Additional Rate Stamp Duty (ARSD) for second properties came into effect.

Despite this, we have now seen signs of recovery as buyers absorb the additional cost of investing into a world class, safe haven asset class. Brexit jitters also appear to be calming down as global political and economic uncertainty makes the UK an attractive place to invest in once more. Prices in the mainstream sector, now edging upwards again, are outperforming the general market in England and Wales which has shown growth of 7.1% since 2014’s tax changes. Growth in England and Wales is likely to see a slow down over the rest of the year if the domestic economy falters.”

A recovery in the lower value sector – which has been less impacted by recent major tax hikes – was anticipated. However, it is more surprising to see that the premium end of the market, where significant price falls have been reported, is now just 3.3% down from the 2014 high, following a 7% market correction over the year.

Naomi Heaton, concludes: “It is reassuring to see that Land Registry data is showing prices in the premium sector down just 3.3% below their 2014 levels. This is despite falls in the first two quarters of this year following a market ‘bounce’ as it assimilated the initial impact of ARSD. Discounts offered on more expensive property has reinvigorated buyers, encouraging them back into the marketplace. International investors have also taken advantage of current exchange rates and continuing low interest rates.”

Whilst there may be further volatility to come, particularly with the Autumn Budget on November 22nd, these findings are certainly encouraging. However, the Chancellor should take heed of the delicate position of the market which has recorded a 10.3% decrease in Stamp Duty tax take, according to HMRC’s latest report. More tax meddling may tip the scales back in the other direction.”