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London sends out early spring shoots to the country market

Average values in the UK index (which measures properties averaging just over £1 million) increased by a marginal 0.6 per cent in the first three months of this year. This growth was mainly confined to the South East where values rose by 1.5 per cent, driven by the equity-rich sellers of London homes who started to make the move to the country.

“There was a noticeable increase in buyer numbers from London in the Home Counties this quarter with 43% of buyers coming from the capital in January to March, compared with 36% in the final quarter of  2011,” says Yolande Barnes, Head of Savills residential research.

“This is a clear sign that the £18 billion of foreign private equity that has flowed into prime central since 2007 is now beginning to trigger a migration of equity out to prime markets in the regions.  Over the course of the property cycle, its impact will be felt everywhere as it moves out from London and increasingly impacts on cheaper properties.”

Crucially, prime regional prices are still on average -17.1 per cent below their former 2007 peak and represent extraordinary value for those seeking to leave London, Barnes believes.  Even in the South East, prices are still 11.7% cheaper than they were in 2007.

“Ultra-prime country properties over £2m had been recovering more in line with London prices, although still stand nearly 10% below their former peak. It would appear though that the 7% stamp duty rate has now created a threshold in the market in which properties priced between £2.0m and £2.5m could see some chipping of values or buyers pausing for thought.

“There are clear signs that the falls we have seen in prime markets – even those close to London – are now slowing and that those regions which are traditionally the first to recover after the capital have bottomed out, and are even starting to recover.

“In January, we said that 2012 would present ‘unprecedented opportunities’ for buyers selling in London and buying in the country and some of them now appear to be taking that opportunity.  The price differential between London and the country has opened to its widest ever and this has triggered interest from Londoners priced out of larger homes in the capital.” 

Annual growth across the prime UK market, like the mainstream market, remains in negative territory at -2.8 per cent year on year, and values are still more than 17 per cent below peak – in contrast to prime central London where they are now some 20 per cent above their former peak.  After the budget, many more Londoners may well wish to avoid the £2m pricing point so a trade out to a larger £1m country house may prove an increasingly attractive option to them.

The Savills market strength indicator for prime property in the Home Counties has just started to tick up and reveals positive prospects for country house values further afield as time goes on.

Average values across the South East have all but flat-lined, with annual falls of just -0.8 per cent on the back of the quarterly rise, while the Eastern region is just -2.2 per cent down year on year, but marginally positive (+0.3%) in the first three months of the year.

Some key commuter hotspots have shown sharp first quarter growth on the back of  renewed interested from London equity buyers, Henley has grown by +5.2%, Guildford, +4.0%, Harpenden +4.5% and Esher by +3.9 per cent.  This is the first clear signal of a ripple of wealth out of the capital, which traditionally indicates that the prime markets further afield should be beginning to bottom out.

The steepest falls are still being seen in the Cornish second home hotspots. These have had an adverse impact on the index because the ‘late cycle players’ such as cash-rich bonus recipients who drove prices to unsustainably high values in the 2006/7 boom have now withdrawn from that market.  Prices are now re-calibrating to those affordable by local prime buyers rather than national holiday home buyers. The prime Cornish market fell -2.3 per cent in the first quarter and is down -18.7 per cent year on year, remaining some -28 per cent below peak.

“Values in Cornwall have struggled to correct, with sellers remaining stubbornly attached to unrealistically high asking prices,” says Barnes.  “There are signs from the market that buyer and seller expectations of value are becoming more aligned, but realistic pricing will be key to achieving a sale.

“By contrast, the more accessible prime Devon market is flat year on the year after adding 2.3 per cent in the first quarter.”

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