Higher school fees slow the ripple of demand towards West London

The prime housing market is typically the top 5% to 10% of the market in any region; reflecting average prime property prices of £4.5m in central London and £1.85m elsewhere.

While there are reasonable prospects for price growth in these markets over the medium term, prices are expected to remain flat next year for the best properties in Chiswick, Fulham, Wandsworth and Islington, according to Savills research. These markets are less likely to see a ripple of demand from central areas, at a time when affluent upsizers are reacting to higher school fees.

“In a normal housing market recovery, you would expect the top-end of the market to recover first, responding quickest to a change in sentiment,” said Lucian Cook, head of residential research at Savills. “However, the additional stamp duty surcharge for second homes, changes in ‘non-doms’ taxation and VAT on school fees are likely to offset some of the impacts of future cuts in interest rates this time around.”

While Savills has forecast that prices in prime central London will rise by around 10% over the next five years, the firm expects prices to fall by 4% next year.

FISCAL AND REGULATORY CHANGES

“The markets of prime central London are most directly affected by the abolition of ‘non-doms’ status and an increased stamp duty barrier, both of which are likely to push some of the demand in these areas to the rental market,” said Cook. “And so, even though prices are already 20% below their June 2014 peak, we expect a further modest fall in prices next year, as the market finds its level in a changed fiscal and regulatory environment.”

The firm has forecast stronger growth in the domestic prime London markets, where there are more needs-based buyers who are set to benefit from a fall in mortgage rates. Here, 14.7% growth is expected over the same five-year period.

The outlook is somewhat brighter in the prime markets outside of London. Here, price growth of 2% is forecast in 2025, contributing to a five-year projected growth of 18.2%.