Rising tax costs and disrupted economic growth will slow performance in the central London market, at a time when a rising number of investors are heading to northern England to achieve higher overall returns.
- Investors in the prime central London property market have been warned to prepare for lower levels of capital growth over the next three years
- A level of economic uncertainty that could impact London, coupled with rising taxation costs, has led to Savills’ latest forecast
- However, London’s stagnation has been the gain of property markets elsewhere, with findings suggesting investors are now turning to high returning real estate in northern England
There will be little to no growth in prime central London property prices between now and 2021.
That’s the message from Savills, which has warned investors not to expect a recovery in growth levels for another three years.
Rising tax costs and economic and political uncertainty, Savills predicts, will continue to weigh heavy on the prime central London market over the next 36 months.
When giving its forecast, Savills also took into account a proposed increase to stamp duty tax currently being considered by the UK government, which would further add to the costs in owning property in the country’s highest-priced city. However, it’s important to remember that this proposal is still at a consultation phase.
Nevertheless, ongoing uncertainty surrounding the UK’s relationship with the European Union post-Brexit, coupled with the already high cost of funding a London purchase, means that it will “add to buyer caution in the short term and temper recovery”.
Savills predicts that prices in the sector will fall 5% by the end of 2018, and then by 1% in 2019, before flattening 12 months later and gradually picking up again in 2022. Prime central London values have now dropped by nearly one-fifth over the last four years.
“Rising borrowing costs, increased taxation, higher investment returns on competing assets and a general election in 2022 — point to a slower rate of recovery than in previous cycles,” summarised Lucian Cook, Director of Residential Research at Savills.
With overall returns plateauing in the capital, investors have quickly identified other areas of the UK that can provide stronger levels of growth. As reported by The Times in October 2018, the reduction in levels spent on property in London is leading to an uplift of investment on property in the north of England.
Cities such as Manchester, where yields are the highest in the country and where the economy is growing at one of the fastest rates nationally, also provides significantly lower purchasing and tax costs, contributing to greater overall returns.