There are several key components that are driving this diversity, not least the big increases in stamp duty. In March 2010 (effective March 2011), a 5 per cent levy was introduced on properties valued at over £1m, while in March 2012 and with immediate effect, the levy on properties over £2m was lifted to 7 per cent. And those looking to buy a 'company house' were hit even harder with a 15 per cent tax. According to research commissioned by residential property specialist Huntly Cooper, the fallout from these increases was far from consistent. In the year after the 7 per cent levy was introduced, the volume of property sales priced between £2m and £2.5m fell by 32 per cent compared with the year leading up to the increased rate. However, below £1.5m the decline was just 3.4 per cent, while property transactions above £5m actually rose.
Some of this can be explained away through the one year of notice given on the 5 per cent levy. This gave buyers a chance to beat the Exchequer, and just a month ahead of the 5 per cent rate becoming law, PCL housing transactions rose to their highest level for over two years, a figure yet to be matched. Buyers also picked their properties with more care as well. In fact, there was an element of downsizing because average prices paid per sq ft for properties sold between £900,000 and up to (but not including) £1m were higher than those on properties costing between £1m and £1.1m.
The imbalance has, if anything, become more pronounced since then. Average prices per sq ft last year on properties between £1.9m up to £2m were 6 per cent higher than those in the £2m-£2.1m bracket, and 16.5 per cent higher on properties sold between £2.1 and £2.2m. However, according to Ollie Hooper, director at Huntly Hooper, this could present an opportunity for buyers willing to absorb the 7 per cent levy, as in terms of size they would be buying more for less when valued in price paid per sq ft. The advantages would not be immediate, but would crystallise when lower priced properties broke through the stamp duty threshold. The downside is mainly political, with potential buyers mindful of the possibility of a mansion tax, should next year's general election bring a change in government.
For investors looking for the best return, it's also worth taking time to establish what sort of properties are performing strongly. On a sales per sq ft basis, for example, apartments outperformed the 8.7 per cent average rise in values at 11.7 per cent, while houses lagged some way behind, gaining 7.6 per cent. Size is important, too. In terms of value appreciation, average-sized homes rose less in percentage terms than smaller properties (under 1,000 sq ft). And within the most sought-after postcodes, the best performers last year were large houses in SW7, one bedroom flats in W1 and flats in SW3 with two or more bedrooms.
Is this a decent guide to forward trends? Limited prospects of any early change in the key pillars of support tend to suggest so. Interest rates are unlikely to be increased for some time; demand from overseas investors looking for a safe and predictable investment return is unlikely to go elsewhere. In fact, the opportunities to profit from currently less-fashionable areas are significant. The golden postcodes will still attract the greatest demand, but the potential to exploit areas under development such as Nine Elms should not be ignored as London takes on more of a Manhattan feel, where people become more relaxed about living and working close together.
However, it makes sense to extend a hint of caution to any market moving up like an escalator. Overseas buyers could change their minds about investing in prime inner-London property, especially if the lure of other investments improves with a rise in interest rates. But this is a long-term factor, while the other key driver of the inflow of funds - namely security from global regional unrest - is also unlikely to change.
