UK housing and economic overviewThe momentum in house price growth is easing, especially in London and the South East. According to the latest data from Nationwide Building Society, average UK prices showed a slowing in the annual rate of price growth, to 5.7%, down from around 12% last summer.

This is not to say that price growth is slowing at the same rate all over the country, in fact we will likely start to see growth rates become more homogenous across the country.

Key facts March 2015UK annual house price growth slowed to 5.7% in February, down from 6.8% in January, according to Nationwide

Prices in prime central London rose by 0.1% in February, but the annual rate of growth slowed from 4.6% to 4%

Prime central London rents climbed by 0.2% last month, taking annual growth in rents to a 3-year high of 4%

House price expectations across UK fall to 18-month low

RESIDENTIAL RESEARCH

UK RESIDENTIAL MARKET UPDATE

“ Politicians are putting more thought into the private rented sector. This is to be expected after a record annual jump in the number of households in the private rented sector in the year to April 2014.”Follow Gráinne at @ggilmorekf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

GRÁINNE GILMORE Head of UK Residential Research

NARROWING OF THE NORTH – SOUTH DIVIDE?Price growth is becoming more homogenous across the country the latest data shows. Meanwhile, with the election now less than two months away, the effects are being felt in the housing sector, with a “two-speed market” emerging in prime London. Gráinne Gilmore examines the latest data.

The narrowing of the “North/South price growth gap” has been illustrated in the latest House Price Sentiment Index, where the margin between the readings for London and the North East is close to a two-year low, meaning that the proportion of households in the North East reporting house price rises is now much closer to the proportion of households reporting increases in London.

As the election approaches, parties are starting to share more details on their plans for housing in the coming Parliament. The Conservatives last week pledged to double the number of “cut-price” homes for first-time buyers from 100,000 to 200,000 by 2020. You can find more details of all

UK house price growth slowing

Source: Nationwide

£160,000

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Narrowing North/South divide HPSI London vs North East

Source: Knight Frank Residential Research / Markit

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the parties’ policies in Knight Frank’s pre-election matrix in our latest forecast report. This matrix will be continually updated as more policies emerge.

As can be seen from the current matrix, politicians are certainly putting more thought into the private rented sector. This is perhaps less of a surprise in light of the new data from the English Housing Survey which showed a record annual jump in the number of households in the private rented sector in the year to April 2014. One in five households are now privately rented, and we expect the growth trend to continue.

Homeownership declines as private renting grows % of households - England

Source: English Housing Survey

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PRIVATE RENTERS OWNER OCCUPIERSSOCIALLY RENTED

RECENT MARKET-LEADING RESEARCH PUBLICATIONS

Knight Frank Research Reports are available at KnightFrank.com/Research

RESIDENTIAL RESEARCH

Gráinne GilmoreHead of UK Residential Research+44 20 7861 5102grainne.gilmore@knightfrank.com

PRESS OFFICE

Jamie Obertelli +44 20 7861 1104 jamie.obertelli@knightfrank.com

© Knight Frank LLP 2015 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

UK RESIDENTIAL MARKET UPDATE MARCH 2015

For the latest news, views and analysison the world of prime property, visit

KnightFrankblog.com/global-briefing

GLOBAL BRIEFING

Price growth in the prime country house market lost some of its momentum in the latter half of 2014, with property values increasing by just 0.5% during the second half of the year. This compares to growth of nearly 3% over the first six months of 2014.

The annual change in prime property prices in 2014 was 3.4%, in line with our forecast for the year. The countdown to the 2015 general election, tighter mortgage lending and the prospect of an interest rate rise, all contributed to slower price growth in the second half.

More restrained price growth in recent months reflects what has happened in the mainstream market, with the Nationwide House Price Index having eased for the fourth consecutive month in December. Any slowdown in the wider market is likely to have an impact on buyer sentiment in the prime markets.

In spite of more moderate prices rises, market activity has remained robust. The number of prime country house sales completed by Knight Frank in 2014 was 3% higher than the previous year and 24% higher than in 2012, indicating that demand remains strong.

Reforms to stamp duty, announced by Chancellor George Osborne during the Autumn Statement, sparked a flurry of

activity in early December as prime property buyers looked to move ahead of the rate change. Under the new rules, buyers of homes valued at more than £937,500 face higher stamp duty charges.

As a result, December 3rd, the day prior to the new rules coming into force, was the busiest day of 2014 for the prime country market in terms of transactions levels.

It is possible that the prime sector of the market may take some time to absorb the changes as a result of the higher upfront cost of moving, with harder negotiations between buyers and vendors likely.

Prime country house prices are still trading at a large ‘relative’ discount to prices in the capital having experienced several years of static or modest growth since the end of the financial crisis and prime prices remain 16% below the previous market peak.

As figure 2 shows, price performance is increasingly dependent on property type. While the average cottage increased in value by 6.8% in 2014, manor houses rose by just 1.4%.

We are forecasting average price growth of 2% across the prime country market in 2015, but do not rule out some areas of outperformance, especially in key commuter towns.

PRIME COUNTRY HOUSE PRICES CLIMB 3.4% IN 2014Prime country house prices rose for an eighth consecutive quarter between October and December, the longest run of uninterrupted price growth since 2007. Oliver Knight examines the latest figures.

Results for Q4 2014Prime country house prices increased by 0.2% in the final quarter of the year, after a 0.3% rise in Q3

Annual growth for 2014 was 3.4%, in line with our forecast for a 3.5% increase in prices over the course of the year

The number of prime country house sales in 2014 was 3% higher than in 2013

Prime country house prices are forecast to increase by 2% in 2015

FIGURE 1

Quarterly and annual prime country price growth

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

FIGURE 2

Prime country: Annual price change by property type

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Q4 Q1 Q2 Q3Q2Q3 Q4 Q4Q12012 2013 2014

3.4%6.8%1.4%

FARMHOUSECOTTAGEMANORHOUSE

RESIDENTIAL RESEARCH

PRIME COUNTRY HOUSE INDEX

OLIVER KNIGHT Residential Research

“ The 0.2% price increase took the annual change in prime property prices in 2014 to 3.4%, in line with our forecast for the year.”

Follow Oliver at @oliverknightkf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

Prices in prime central London rose for the first time in five months in February, boosted by price growth in markets with a higher proportion of properties that would not be subject to a proposed ‘mansion tax’.

A marginal increase of 0.1% was the first time the index has risen since September 2014 in a market where activity has been kept in check by the potential of a ‘mansion tax’ on properties worth more than £2 million after May’s general election.

Annual growth slowed to 4%, which is half of the 2014 average of 8.1%.

Stronger-performing markets included Islington and the City & Fringe in the eastern area of prime central London, where prices grew by 1.3% and 1% respectively in February. Both recorded annual growth of 9.1%.

The Riverside market, which was included in the index six months ago to reflect the high quality of developments in areas like Battersea and Vauxhall, has also risen 0.4% this year.

Elsewhere, there were declines in more

traditional prime markets with higher-value properties, including -0.8% in Chelsea, -0.2% in Notting Hill and -0.2% in South Kensington.

The existence of a two-speed market was underlined by the fact values for properties worth in excess of £5 million and £10 million declined by -0.1% in February. Meanwhile, prices in the £1 million to £2 million price bracket grew 0.4% in February, up 6.8% in the last year.

We estimate that 46% of £2 million-plus properties are located in the prime central London boroughs of Westminster and Kensington & Chelsea. However, eight out of ten properties on the £2 million ‘mansion tax’ threshold would be located outside the two boroughs in areas of suburban London and the Home Counties, research shows.

Though any tax would be lower in value and there is more clarity on the potential levy for properties worth between £2 million and £3 million, it underlines there is a mistaken belief the mansion tax would start to bite in prime central London.

FEBRUARY 2015Prices rose by 0.1% in February as Islington and City & Fringe performed strongly

Annual growth slowed to 4%, half of the 2014 average of 8.1%

Prices declined -0.1% in February for £5 million-plus properties while there was growth of 0.4% in the £1 million to £2 million price band

There were declines of -0.8% in Chelsea, -0.2% in Notting Hill and -0.2% in South Kensington

Eight out of ten properties on the £2 million ‘mansion tax’ threshold are located outside Westminster and Kensington & Chelsea

TOM BILL Head of London Residential Research

“It underlines the mistaken belief the mansion tax would start to bite in prime central London.” Follow Tom at @TomBill_KF

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

MANSION TAX UNCERTAINTY CREATES A TWO-SPEED MARKET IN PRIME CENTRAL LONDONMarkets with a higher proportion of properties not subject to a proposed ‘mansion tax’ are outperforming the prime central London average, says Tom Bill

RESIDENTIAL RESEARCH

PRIME CENTRALLONDON SALES INDEX

FIGURE 1 ‘New’ outperforms ‘old’ in prime central London

Source: Knight Frank Residential Research Source: Knight Frank Residential Research

FIGURE 2 Price growth by price bracket (Two years to February 2015)

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Prime Central London Sales Index Feb 2015

UK Residential Forecast & Risk Monitor Feb 2015

UK AND REGIONAL PRICE FORECASTS

COMPREHENSIVE DATA AND COMMENTARY

HOUSING POLICY ROUND-UP

UK RESIDENTIAL FORECAST & RISK MONITOR PRE-ELECTION EDITION FEBRUARY 2015

RESIDENTIAL RESEARCH

KEY HOUSING

POLITICIANS SHARE THEIR PLEDGES WITH

KNIGHT FRANK

Prime Country House Index Q4 2014

Multi-speed market in prime central London Two-year price growth by price band

Source: Knight Frank Residential Research

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Prime central London annual rental growth hits 3-year high

Source: Knight Frank Residential Research

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Price growth in prime central London by area in the year to February 2015

Source: Knight Frank Residential Research

Prime markets

Prices in prime central London rose for the first time in five months in February, boosted by price growth in markets with a higher proportion of properties that would not be subject to a proposed ‘mansion tax’. The “two-speed market” is underlined by the difference in price growth at different price bands over the last two years.

The debate about “mansion tax” in the run-up to the election continues to have an impact on the prime markets, weighing on activity for homes in the £2m-£4m bracket. New analysis suggests that eight out of ten properties on the £2 million ‘mansion tax’ threshold will be located in areas of suburban London and the Home Counties, not in prime central London.

In the prime country house market, prices rose by 3.4% last year. The market is regionalised, however, with key commuter towns and regional cities outperforming. There is increasing interest from buyers moving from London, keen to capitalise on the relative difference in pricing between the capital and the rest of the country. This can be seen clearly in price performance in areas such as Cheltenham and Oxford.

In Scotland, the Edinburgh market continues to lead from the front, with a 0.5% rise in prices in the final quarter of 2014, taking the annual rate of price growth to 4.2%. Activity remains robust and research shows that the city accounted for 48% of all £1m+ transactions north of the border in 2014.

In the wider Scottish prime country house market values rose by 1% in the final quarter of 2014 and by 2.1% on an annual basis.

The Wealth Report 2015

Rental marketsRental values in prime central London continued their recovery in February, rising by 0.2%. Annual growth now stands at 4%, the highest level in more than three years. Activity is being curbed by the election, with many taking a wait-and-see attitude before committing to property decisions in the Capital.