No-one can deny that the UK’s housing market is currently enduring a period of value correction.Throughout this bulletin, we look at how the prime markets in London and across the UK have reacted to date and consider the timings and strength of their recovery. History shows that the prime markets behave differently to mainstream property (they are usually either more vulnerable or more resilient).  But, the key symptom of the current credit crisis has been the simultaneous impact on all sectors of the market (albeit at varying degrees).  The increasingly pessimistic economic outlook leads us to believe that weak market conditions, characterised by low turnover, will persist for at least the next 18 months. 

Prime Central London

“Values are falling more quickly in prime London than in other markets and we expect them to end the year down -15% and, by the end of 2009, we expect them to have lost 25% of their 2007 value.”  Reduced earnings and job security expectations amongst City buyers has curtailed the demand for property in prime central London.  The more pessimistic outlook over the last couple of months has fed quickly into values. Over the second quarter of2008, our index of capital values in prime central London recorded its lowest quarterly figure since the index began with values falling by -5.5%. Values are now -9% lower than their peak in the late summer of 2007.

The hardest hit parts of prime central London have been in the West (Kensington, Notting Hill and Holland Park). This area saw the biggest price rises in 2007but has seen falls of -9.3% over the second quarter of2008.  This takes values down -15% since their peak in 2007.  This market has been most seriously affected by the financial turmoil, uncertainty over future bonus payouts and fall off in demand from international buyers. 

Although the new legislation affecting the taxation of non-domiciles in the UK was less draconian than initially  feared, it did have a knock-on effect on international demand in central London during the first half of 2008.  This was particularly evident in the mid to upper prime price bands.  The only market which has so far defied the downturn is the ‘uber-prime’sector(properties over £10m) where values continue to rise,albeit more slowly than the unprecedented rates seen in 2006 and 2007.  “In this price band, demand for the most exceptional properties continues to outstrip supply resulting in prices rising by +1.2% in Q208 taking year-on-year growth to +11.5%.”

Read the full Savills article below

UK Prime Residential Market - Summer 08 PDF