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July 19, 2013 7:07 pm

Prices of London’s trophy homes fall

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Luxury automobiles are seen parked alongside residential property on Eaton Place in the London area of Belgravia, in London,©Bloomberg

Prices of “super-prime” properties in central London – those worth more than £10m – have started to decline as buyers seek more value, experts say.

According to Savills, values of £10m+ homes, which the estate agent defines as “ultra prime”, fell 0.3 per cent in the three months to June.

In comparison, values across the other price bands in prime central London continue to rise. Properties valued under £2m saw growth of 1.7 per cent, while houses in the £2m-£3.5m and £3.5m-£5m brackets rose 1.8 per cent and 1.9 per cent respectively.

Some property agents blame the slowdown on continuing speculation over the introduction of a “mansion tax” and the disappearance of Arab buyers due to Ramadan. Others say it could just be down to a summer lull in activity.

“We are definitely seeing a shortage of buyers at the very top end of the market and prices are levelling,” said Philip Selway of The Buying Solution, a buying agent.

Ed Mead of Douglas & Gordon, the London-based estate agent, believes “political posturing” is the biggest single factor for the dampening in demand.

Richard Barber of WA Ellis, the estate agency, agreed. “This lack of activity is partly due to apprehension regarding the 2015 election, with the belief that if a Labour government were elected, it would eventually introduce a mansion tax in some form.”

However, some believe part of the problem is that prices for trophy homes are now simply too high.

Properties valued at £10m and over have risen the most in recent years, with prices now standing at 38.3 per cent above their previous peak in 2007 (although in many foreign currencies, they are little-changed or even lower). In comparison, properties worth under £2m have risen 23 per cent since their pre-credit crisis peak.

Robert Bailey, a buying agent, believes prices have been “overly optimistic” for some time. “I think it’s true of the London market in general. Prices have gone up too much. Bankers aren’t earning the bonuses they once did.”

While the first half of this year saw a 30 per cent rise in the number of £10m+ home sales to 85, agents suggest buyers are starting to become more price sensitive.

“There is less urgency in the market,” said Jonathan Hewlett of Savills. “Decision-making is slower, buying is now predominantly needs-based, rather than discretionary, but there are committed buyers in the market for properties at the right price.”

The slowdown at the very top end of the market comes as the mainstream UK housing market shows further signs of improvement.

Mortgage lending rose to its highest level last month since autumn 2008 as government schemes, such as Funding for Lending and Help to Buy, continue to boost the UK housing market.

The Council of Mortgage Lenders said that gross mortgage lending rose to £15bn in June, up 2 per cent from May and an increase of 26 per cent from a year ago. This is the highest monthly estimate for lending since October 2008.

The impact of the government’s schemes led Savills to revise its housing market forecasts upwards on Thursday. It said UK average prices could rise 3.5 per cent this year, up from its original forecast of 0.5 per cent.

It now expects house prices to increase 18.1 per cent for the period 2013-2017, compared to its earlier forecast of 11.5 per cent. According to Lucian Cook of Savills on an inflation-adjusted basis this will mean price rises of 2.3 per cent.

The estate agent revised its forecasts for prime central London downwards from 25.6 per cent over the next five years to 24.3 per cent. It believes the general election in 2015 will trigger a lull.

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