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Coutts London Prime Property Index | Q3 2019

Prime property prices have fallen this quarter, but some areas are bearing up better than others, and even making gains. Our quarterly Coutts London Prime Property Index outlines the runners and riders for the latest quarter.

5 min read


Our latest survey of prime property in London finds sales activity up but prices down, wiping out the rises of the first half of the year.


Fall in prices over the latest quarter, following two quarters of increases


Fall in number of new instructions compared to last year


Average discount to asking price, the lowest figure seen in two years

  • Overview

    Chapter 01


    Gains in the first half of the year have been wiped out by recent falls

    After two positive quarters, chill winds returned to the London prime property market over the summer. A fall of -0.8% in the three months to the end of September was enough to cancel out the price growth in the first half of the year and leave prices just 0.4% up on 30 September 2018. Compared to the last peak in 2014, prices are down -15.2%.

    Recent flurry of activity in what has been a flat few years

    Despite Brexit woes, sales activity was up 10.3% compared to the previous quarter. Quarterly sales were the highest we’ve seen since the end of 2017. This suggests that patience may be running out for sellers who have been holding off in the hope of a recovery in prices, with buyers snapping up properties at attractive prices. This has been particularly true for foreign buyers who have the added advantage of a weak pound.

    But market activity remains well below peak levels, with sales volumes 27.8% down on 2013. The last three months have seen a particularly acute slowdown in the £5 million plus market, possibly due in part to potential stamp duty changes that would reduce the top rate from 12% to 7% - a substantial saving on a £5 million property for those who wait, should the proposal ever see the light of day.


    Low stock driving buyers off-market

    New instructions also remain low, -10.5% down on last year and -45.2% below the 2014 peak, making it a challenge to find new stock. Increasingly, this is driving buyers to other, creative ways of finding their ‘dream property’, often using a buying agent with access to properties that may not be on the open market.

    The off-market pool of property can include pre-market opportunities that have yet to be formally put up for sale, and properties where a seller has instructed an agent to market the property discretely. Sellers can choose to go down this route for a variety of reasons, for example to avoid ‘date-stamping’ a property for fear it could become ‘stale’ if it fails to sell promptly. And truly off-market opportunities can come from direct approaches to a developer or property owner, or someone on their team such as an architect, solicitor or bank.

    “Despite Brexit woes, sales activity was up 10.3% compared to the previous quarter. Quarterly sales were the highest we’ve seen since the end of 2017.”
    Katherine O’Shea, Coutts Real Estate Investment Service

    Converging price expectations see narrowing discounts

    The average discount on asking price across London continues to fall, suggesting that buyers and sellers are arriving at a consensus on valuation levels. The average discount now stands at -10.3%, the lowest figure we’ve seen over the last eight consecutive quarters.

    The largest discounts are being negotiated on higher value properties with an average -15.2% coming off the asking price for super prime properties (£10 million plus). This would indicate there is a significant mismatch between the expectations of sellers and the prices that buyers are willing to pay at this high end of the market. This is perhaps driven by the lower turnover of properties at this rarefied level: the more active markets provide a greater level of market intelligence, helping sellers set prices.

    For super-prime properties there’s always going to be an element of guess work on what the market will pay, and many properties at this level can have unique qualities that make comparisons difficult. In these circumstances, perhaps sellers reason that pitching the price higher provides the property with more caché while potentially tilting the final price up.

    Just under half (47.0%) of properties are sold at a discount to the asking price. Gross rental yields remain unchanged, at 3.9% on average across prime London markets. This is a relatively low income compared to other investments – the FTSE 100 currently yields 4.5% - although it can be helpful to diversify income streams to offset volatility in other markets.


    Have we reached rock bottom?

    The two biggest risk factors we’ve seen for property investment have been rising taxes that can impact potential gains and ongoing uncertainty surrounding Brexit. While the 3% surcharge for investment property is likely to remain in place, there are now reasons for optimism regarding a potential bottoming of the market.

    Firstly, we expect Brexit to be resolved over the coming months, likely with a deal. Should this happen, we believe that overseas investors could be encouraged back to the UK market, attracted by very low sterling exchange rates that make UK properties a particular bargain for the non-sterling buyer.

    Additionally, there is evidence to support our ‘low for longer’ view on interest rates. In the US, a bellwether for global markets, short-term rates have peaked already at below 3%, indicating that the global structure of rates is much lower than previously thought. We believe that this low global interest rate structure could be a key long-term support for real estate.

  • Sustainability

    Chapter 02


    Changing values

    Climate change is impacting the world of housing for homeowners, property investors and lenders.

    The need to find more sustainable ways of living is increasingly urgent, and is therefore driving a critical reassessment of how we build our homes, where we build them and how we assess their value.

    Alison Robb, sustainability lead at Coutts observes, “The desire for a more sustainable world will bring change across the property sector. Banks like Coutts have a key role to play in facilitating and supporting this transformation.”


    The environmental impact of housing

    About 14% of total UK greenhouse gas emissions come from sources relating to residential property, according to the 2019 report ‘Reducing UK Emissions’ from the Committee on Climate Change.

    While housing emissions have been falling, recent research from the Ministry of Housing shows that the trend has stalled and government agencies now believe that the government won’t reach its target for net zero emissions by 2050, without a significant improvement and near-complete decarbonisation of the 23.9 million homes in the UK.

    While creating new, carbon-neutral homes will help, the only way to meet these targets will be through adapting existing homes. To help, the government has created various initiatives, most recently launching the Green Finance Institute in conjunction with the City of London Corporation, who will be looking at retro-fitting as one of their key initiatives.

    The government’s Clean Growth Strategy, published by the department for Business, Energy and Industrial Strategy (BEIS) in 2017 set a goal to upgrade all homes to Energy Performance Certificate (EPC) Band C by 2035, with an earlier goal for rented homes of 2030. With only about 30 per cent of homes in the UK currently at EPC Band C, meeting the ambitions in the Clean Growth Strategy looks like a significant challenge.


    Lenders reassessing risk

    The most visible impact of climate change on the UK property market will come in areas under flood risk, or likely to be classified as under flood risk in the future. While home insurance premiums in areas close to rivers or coastal lines have increased over the past few years to cover this risk more acutely, the real estate industry as a whole could also factor in the anticipation of ‘climate change risk’ further in property prices – starting with the valuation process. Lenders would need to consider flood risk, too, from the perspective of banks’ collateral. This could lead to lower loan amounts or different mortgage pricing in at-risk areas, as happens in the insurance market.

    There’s wide-spread agreement that lenders have a significant role to play in changing the energy profile of the UK’s homes. The BEIS may oblige banks to report on the EPC skew of the properties on their books in the near future, and may even be required to enforce standards for the properties they lend against.

    Alison Robb says that banks like Coutts can be part of the solution. “We’re reviewing our lending strategy to see how we can support the transition to a net zero economy. We have a robust approach to responsible investing developed over the last four years that has received positive feedback from our clients. We are keen for our client propositions to respond to both the direction of government policy, and our clients’ growing awareness of the contribution they can make to a changing world.”

  • Local Insights

    Chapter 03

    Local Insights

    Lack of stock sustaining prices in central locations

    While the general trend is down, prices in more traditional prime central locations increased in the last quarter compared to the quarter before.  It’s surely no surprise that in a stressed market, the highly desirable prime property heartlands – Mayfair & St James’s, Knightsbridge & Belgravia and Kensington, Notting Hill & Holland Park – will continue to attract buyers above the outlying areas. On an annual basis, prices in Mayfair & St James’s, for example, are up 11.1%, although the small sample size can produce erratic results.

    As well as retaining their attraction for buyers, lack of stock is playing a particularly powerful role in providing a floor under prices – in these areas there is between 18% and 28% less stock available on the open market compared to 2018.

    Super prime sales this quarter were concentrated in Kensington and Notting Hill & Holland Park, closely followed by Chelsea.


    Outer prime driven by family fortunes

    Outer prime areas, such as Islington and Hampstead, mainly dominated by buyers looking for family homes, have held up relatively well since 2014. Prices in Hampstead & Highgate are just -3.5% below the peak and in King’s Cross & Islington, just -4.5% lower than five years ago.

    However, outer prime areas are also suffering from a distinct lack of new listings. In areas such as Islington, Chiswick and Wimbledon new listings have fallen by over -75% compared to two years ago.

    But not all outer prime prices have held up. Prices in Fulham & Earl’s Court continue to soften, and are now -22.0% below 2014 peak values.

    In general, price movements in outer prime locations tend to lag behind central prime but, if the ripple effect follows its usual pattern, we’d expect to see some positive price movements in outer prime areas later.

    Helping you buy your home

    Coutts can help you find your dream home anywhere in the UK.

    We can introduce you to professionals experienced in finding property to ensure you are aware of a host of suitable opportunities – both on and off the market.

    Our agents are skilled negotiators who aim to secure property on the best available terms and place you, whenever possible, in a ‘preferred purchaser’ position.

    Coutts also offers a range of flexible lending options tailored to your situation.

    To find out more, speak to your private banker or wealth manager, or call Coutts 24 on 020 7957 2424.

    Your home or property may be repossessed if you do not keep up repayments on your mortgage. 

    Over-18s only. Terms and conditions apply. You may not be eligible for all Coutts mortgage solutions. Security may be required.

  • Interactive Map & Postcode Selector Tool

    Chapter 04

    Interactive Map & Postcode Selector Tool

    Use the map and postcode selector below to see how your area performed last quarter.