Savills : Outer prime London family homes see values drop as prime central London falls slow

After three years of price falls, there are signs that prime central London housing values may be bottoming out, while those in other more domestic markets come under increasing pressure from fragile buyer sentiment.

For the first time since June 2012, annual price falls in prime southwest have exceeded those seen in prime central London, and the pace of falls has picked up over the past three in these popular family markets, according to the Savills prime London indices.

Values in the UK capital's most expensive central locations slipped a marginal 0.9 per cent in the final quarter of 2017, while annual price falls totalled -4.0 per cent, in line with the firm's expectations.

Across the more domestic prime southwest London market - a belt that runs from Battersea through Clapham and Wandsworth to the south, and Fulham, Barnes and Richmond to the west - values fell by an average of -1.6 per cent in the last three months of 2017 and -4.2 per cent in the year, making this the capital's weakest prime market segment.

Savills believes that prime central London is ahead of the curve in adjusting to current market conditions. Values are on average 15.9 per cent below their 2014 peak, ahead of the first significant stamp duty increase. But the rate of price falls has slowed and values are now finding a level, the firm says, albeit no growth is expected for the next two years.

Prime southwest London house prices are on average -7.3 per cent below the 2014 peak, less than half the fall seen in prime central London. Buyers in these markets are now feeling the constraints of the mortgage market review, as well as unease around the Brexit process and its potential impact on employment, particularly in the financial and business services sector.

	Q4 2017	Annual growth 2017	Since 2014 peak	5 year growth to end 2017	5 year forecasts 2018-2022
Prime central London	-0.9%	-4.0%	-15.9%	-6.7%	20.3%
Prime South West London	-1.6%	-4.2%	-7.3%	9.9%	See below
Outer prime London average	-1.2%	-3.3%	-5.8%	9.5%	10.2%

Source: Savills prime London index Q4 2017

Fulham, the market that traditionally behaves more in line with its central London neighbours than the rest of southwest London, has recorded the steepest falls in this submarket. Prices fell by -4.6 per cent in 2017 and are down -14.4 per cent on the 2014 peak, in line with core prime central London locations such as Knightsbridge and Holland Park.

This means average values in Fulham, which passed the £1,000 per square foot mark in2013, have fallen back to £890, just below the £910 prime Battersea average and well below Chelsea's £1,600. This effectively repositions Fulham as a value location for those looking to make their equity stretch further than in prime central London.

'The prime central London market may be bottoming out, but we don't expect a return to growth until there's greater clarity regarding the Brexit process,' says Lucian Cook, Savills head of residential research.

'A backdrop of political and economic uncertainty means the market will remain highly discretionary, while the high tax environment means that even international buyers remain reluctant to take advantage of the currency play. Our forecasts anticipate it will be two years before we see a bounce in values.'

Lower value outer prime London markets were less impacted by stamp duty reform, but are now succumbing to weaker domestic buyer sentiment pending more conclusive Brexit negotiations, mortgage constraints and concerns regarding future interest rate rises.

'We expect continued weakness in price performance in key outer prime London markets, and are forecasting small falls next year. These markets are much more dependent on domestic wealth generation and access to borrowing than prime central London. As such, our forecasts are for much more modest house price growth over the next five years.