As the Prime Central London (PCL) market flattens, new London locations look set to shine this year. Here’s what’s in store for the London property market in 2016 according to local experts…

Words: Fiona Brandhorst

It’s set to be another interesting year in the London property market as stock shortages contribute to rising prices and interest rates can head only one way.

Stamp duty reform, very low inflation and tighter lending criteria will continue to moderate London’s housing markets over the short term which could be good news for buyers, although continued demand and limited supply means overall London remains one of the strongest markets for price growth.

Savills predicts flat house price growth in 2016 followed by a 2% rise in 2017 for its £5 million prime central London (PCL) market, which saw small annual price falls at the end of 2015 due to the impact of higher stamp duty charges introduced a year ago. Savills says prices in other prime London locations, less affected by stamp duty, are forecast to rise by two per cent for each of the next two years.

Seventy per cent of UK homes worth £1 million plus are in London and rising property values in 2015 resulted in a number of new areas crossing over into prime thresholds. Earls Court, North and West Kensington, Bayswater and Victoria are the hotspots which have joined the established £1m plus PCL markets of Kensington, Westminster, Chelsea and Mayfair. Beyond central London the £1 million plus market will also take in more of Fulham, Highgate, Chiswick, East Sheen and Dulwich in 2016.

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‘The catalyst for rising average property prices is often organic expansion, as locations with much lower prices than their neighbouring areas benefit,’ says Sophie Chick of Savills’ research department. Regeneration and infrastructure improvements such as Crossrail will continue to play a big part in London this year, creating desirability and pulling wealth into new areas.

Knight Frank has revised its 2016 forecast for price growth in prime central London from 4.5% to 2%. Liam Bailey, Global Head of Research at Knight Frank, attributes this to the challenges of stamp duty: ‘It’s a factor that will continue to weigh on transactions and price growth into 2016. However, the strength of the UK’s economic recovery, employment growth in London and the likelihood of continued low interest rates mean price growth will remain positive in 2016.’

Demand will continue to be particularly strong for properties in the best condition and on a prime floor, street or square. However, Bailey adds that there’s no sense the market is entering full-blown recovery mode after what has been a subdued 2015.

Knight Frank has revised its 2016 forecast for price growth in prime central London from 4.5% to 2%

Price rises in the capital will force buyers out looking for cheaper property thus Strutt & Parker’s five-year forecasts through to 2020 show that the south east of England will outperform London with growth of almost 23% against 19.8% in London.

Will the effects of tightened lending continue to moderate the market? Cash buyers are still the most dominant in prime central London with 75% of purchasers buying without a mortgage. However, Savills make the point that outside of this market, around 51% of prime London buyers rely on a mortgage for at least half the purchase price, so the cost of mortgages, when interest rates rise, will have an impact.

While London continues to be a safe haven for foreign investment, British buyers are still the dominant group in every prime London region, meaning domestic wealth generation is critical to the ongoing success of the market. New tech businesses are increasingly seen as wealth creators and High Net Worth Individuals are a key source of demand for the important prime London residential markets.


Cluttons supports house price growth in the capital with the prediction of an annual rate of increase of around 3.5% to 4% between 2016 and 2019. It also expects interest rates to start nudging upwards by about 0.25% every six months, although this may be pushed back if the global economy continues to falter.

The Royal Institution of Chartered Surveyors points to the persistent supply demand imbalance as the chief reason for house price growth. Chief economist Simon Rubinsohn says: ‘We are locked in a cycle where the lack of available properties on agents’ books is deterring some potential vendors from thinking about putting their own property on the market. Against this backdrop, it is hard not to see prices continuing to move higher in the early part of 2016.’


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