Prices in prime central London were flat in October, ending a four-year period of uninterrupted growth.
The positive run began in November 2010, the same month Ireland became the second European country after Greece to receive a bailout as concerns grew over the future of the eurozone.
Ireland has since left its bailout programme and the economic risks that drove buyers into the safety of London property have been superseded by political risks that have created a mood of caution. As a result there is growing evidence that asking prices are having to adjust to more subdued market conditions. The risks include the possibility of a ‘mansion tax’ after next May’s general election, a proposal that pre-dates the Irish bailout by a year, though it is a prospect that has moved into the foreground as the election approaches.
Its potential impact remains difficult to assess given a lack of detail but the behaviour of prices in prime central London suggests a certain level of risk is already priced in.
Annual price growth has been slowing for the last three years from a peak of 12.6% in November 2011, down to 6.5% in October this year due to uncertainty relating to a series of tax changes in addition to mansion tax.
It is worth emphasising the gradual nature of the slowdown, which is typical after such a strong run. Furthermore, the fact monthly growth reached zero in October is in line with a forecast we made more than a year ago. While we expect zero growth in central London prices throughout 2015, if the prospect of a mansion tax recedes after May, we could see modest positive growth in the second half of the year.
Between 2015 and 2019, we forecast cumulative growth of 22% during what we believe will be a more subdued period for the prime central London market compared to recent years.
Prices grew 40% in the four years to October, exceeding growth of 15% in the UK mainstream market and a 9% fall in the price of the safe haven asset gold. Growth of 56.4% was strongest in the £1 million to £2 million price bracket.
