Property prices in prime central London have reached a "turning point", rising for the first time since September 2014 despite the absence of international buyers, according to consultancy Savills.
Easing lockdown restrictions and the return of office workers to the UK capital resulted in annual house price growth of 1.4 per cent in the third quarter – the second three-month period of growth in a row – after prices for the central London market bottomed out.
“Families searching for space have been the driving force within the prime London market throughout the pandemic. These buyers have been spurred on by the low interest rate environment which has cushioned any impact of the tapered withdrawal of the stamp duty holiday,” said Lucian Cook, head of residential research at Savills.
“However, as we edge back towards normality, we are seeing prices rise across a wider range of properties.”
Meanwhile, Mr Cook said, London is yet to feel the full force of international demand returning to the market.
"As international travel is progressively reinstated, we expect to see more pronounced price growth in this market, which has been a long time coming. While we expect prices to end the year around 2 per cent higher in 2021, we expect annual price growth to rise to 8 per cent next year," he said.
Prime London houses with six or more bedrooms have risen by an average of 6.2 per cent in the past year, with values of five-bedroom properties up 5.3 per cent.
However, in a sign a more traditional market is set to return, prices for prime central London flats have grown 0.6 per cent on the year for the first time since the 2014 market peak.
“Year-on-year movements in the capital value of two and three-bedroom homes in London’s most desirable locations have now moved into positive territory. We are beginning to see the return of demand for the pied-a-terre in London, particularly from those who bought in the country,” Mr Cook said.
“A lot of these changes have been driven by the changing priorities of those who have either started to return to the office or who are contemplating it. In our September buyer survey, proximity to the tube or train station took over from proximity to a park or green space at the top of buyers’ wish lists."
British house price increases slowed in September, rising 10 per cent compared with the same period a year ago – the fifth month of double-digit growth in a row, according to the recent Nationwide House Price Index.
The dip on the 11 per cent annual increase recorded in August reflected the tapering of the stamp duty tax break, with London house prices posting the worst performance in the UK in the third quarter as the market continued to rebalance after the pandemic.
However, Savills said the slight rise in prime central London prices was being driven by growth in Notting Hill, which recorded a 4.6 per cent increase, with Bayswater achieving growth of 3.3 per cent, and Holland Park 2.6 per cent as buyers were still drawn to larger homes with gardens.
Prices outside of central London are up by an average 2.7 per cent on an annual basis, again underpinned by demand for large family homes, although growth across a wider range of properties is starting to return.