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24th May 2017 LonRes* Sales market overview – spring 2017.

For the last two years, transaction volumes in the first three months were distorted, in different ways, by the introduction of new rules on Stamp Duty Land Tax.

In 2015, the market slowed in reaction to the new rates introduced in late 2014. Last year, LonRes reports, activity increased in anticipation of further changes to stamp duty rates, introduced in April. This makes drawing annual comparisons difficult, meaning the 26% annual fall across our three prime areas this quarter reflects an abnormal market last year, rather than a significant slowdown this year.

Indeed, there does appear to be some optimism creeping into the market. In prime central London (PCL), the number of properties going under offer between January and March was just 9% lower than in early 2016. This suggests we could expect an increase in transactions over the next couple of months, if the June election doesn’t discourage buyers from entering the market in the second quarter.

New instructions fall

The risk, in a low transaction market, is that any increase in new instructions will lead to more significant increases in levels of stock on the market. This, in turn, can put further downward pressure on prices. However, new instructions across PCL have fallen in line with transactions: in the first three months of 2017 there were 25% fewer new instructions, meaning that despite fewer transactions, the number of properties on the market for sale increased by just 3% on Q1 2016.

Prices have changed little over the last 12 months, with values achieved across our three areas, on average 1% lower than they were at this point a year ago. Of our three prime areas, PCL saw the most significant, yet still relatively modest fall in prices, down 2.6% over the last 12 months.

Buyers are still price-sensitive and confident in their ability to negotiate but low interest rates and a lower exposure to high loan-to-value mortgages mean few in prime areas have to move. On one hand, this is shielding the market from the likelihood of further significant price falls but it also means that some vendors are deciding that if they can’t achieve their desired price they won’t move. This is impacting transaction volumes and the number of properties being withdrawn from the market; indeed, the number of properties withdrawn in Q1 2017 was 15% higher than Q1 2016, the fourth consecutive quarterly increase.

Looking ahead

With Article 50 now triggered, there is still uncertainty about the ramifications of leaving the EU and the impact on the housing market. In addition, the announcement of another general election in June could mean some prospective buyers may further delay their decision to buy. This all contributes to a more cautious mood amongst our (LonRes) subscribers on the prospects for growth in both prices and transactions this year.

(*LonRes is an exclusive subscriber network strictly limited to known and established property professionals and the definitive source of property data for central London).

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