Kay & Co – Marylebone Market Commentary Q1 2016
Review of Q1 2016
As anticipated, the first quarter of 2016 saw an increase in activity in the central London housing market. Investors and second home purchasers were eager to complete their deals before the 3% stamp duty surcharge came into force at the beginning of April. What happens next depends on the reaction of investors to the increased stamp duty costs and how the country votes on 23rd June in the EU referendum.
Investors boosting activity levels
The first quarter of 2016 (Q1 2016) saw a huge increase in sales in Marylebone compared to the same period in 2015 (Q1 2015). Overall there were 46% more sales recorded in the area in Q1 2016 compared to Q1 2015. This compares with a 13% increase in transactions across prime central London over the same period. While a dramatic rise, it is worth noting that sales levels in Q1 2015 were particularly low, as they were affected by stamp duty reform at the end of 2014 and uncertainty in the run-up to the election. The relatively low numbers of sales in Marylebone (compared to the whole of PCL) mean that small changes in actual numbers can have a large effect on the percentages.
The General Election led both buyers and vendors to hold off on activity in the early months of 2015. In a similar vein, the Mayoral election in May and EU Referendum in June are likely to subdue activity rates in the coming months of 2016. The major concern is the uncertainty that these events are bringing to the market. Many feel that if the country votes to remain within the EU, the renewed certainty will encourage back buyers who have been adopting a wait and see approach. The impact of a Brexit is much less apparent, as it will prolong uncertainty in the market. However, a predicted fall in the value of Sterling may attract increased foreign investors as a result of currency exchange advantages.
Annual change in transactions across Marylebone compared to prime central London
Source: Dataloft using LonRes data
Marylebone price growth outperforming PCL
Stronger levels of demand in the first months of 2016 have supported some increases in average prices. On an annual basis, average prices per square foot in Marylebone are now 5.6% higher than they were in the first quarter of 2015. This compares with a 3.4% increase across prime central London. However, with a feeling of uncertainty in the market, it is unlikely that prices will rise much further in 2016.
Annual change in average prices per square foot across Marylebone compared to prime central London
Source: Dataloft using LonRes data
Stamp duty effect
The full impact of the increased stamp duty for second property purchasers will take a number of months to be revealed. We anticipate that transaction levels will take a hit in coming months as investors take stock of the market and review their options. With the reduction in mortgage tax relief on buy-to-let properties, some investors may choose to sell up all or part of their portfolios.
However, residential property remains a valuable and profitable investment choice for many. Long-term investors may well absorb the increased costs in the expectation of capital growth on their properties.
Typical stamp duty cost on two bedroom flat
Source: Dataloft, using LonRes data, based on average sales price from Jan 2015 to date
The lettings market
Marylebone’s lettings market has also had a busy start to 2016. There were 12% more properties let in Q1 2016 than there were in Q1 2015. That said, global financial uncertainties continue to affect demand levels for rental properties in some parts and across prime central London as a whole there were 7% fewer properties let in the first quarter compared to the same period in 2015.
In Marylebone, average rental values rose by 0.8% over the first quarter and are now 5% higher than they were in Q1 2015. Renting in Marylebone remains a more affordable option for many tenants. In Q1 2016, average rents were around 20% below the prime central London average.
Average weekly rents in Marylebone and across prime central London
Source: Dataloft, using LonRes data