Strutt & Parker’s data for the second quarter of 2014 shows signs of uncertainty in the Prime Central London (PCL) market, with the number of transactions in the sub £2m market down by -17.2% on the same quarter last year. The £5m plus market fared much better, with an increase in transactions of 18.6% - whilst the £2-5m bracket stayed relatively stable at -0.5%.

Stephanie McMahon, Head of Research at Strutt & Parker, said: “The drop in values and volumes in the sub £2m market has come as somewhat of a surprise. That said, the PCL market is volatile and those buying around the £2m mark are becoming increasingly nervous of the election in 10 months’ time.”

She continues: “Having said this, the whispers of mansion tax and the on-going geopolitical issues seem to have had very little effect on the PCL sales market in the £2-5 million category.”

Overall sales are down - a total of 828 homes were sold during the second quarter of 2014, which was an -8.0% decrease over the quarterly average. However, overall prices continue to creep up as transaction values increase – there was a 10% increase in the value of homes sold during Q2.

Strutt & Parker’s London Q2 report defines PCL as Chelsea, Kensington, Fulham, Notting Hill, Knightsbridge and Belgravia. Out of the areas analysed, Kensington & Notting Hill performed the strongest with 9.1% growth, thanks to a balanced supply and demand market. Knightsbridge & Belgravia’s performance was the poorest, with a -26.3% decrease in transactions.

The lettings market performed better. There were 2,862 property lets agreed in PCL during Q2 2014, which was 3.6% above the quarterly average for the past five years. Achieved rents by price band also remained positive above the £1,500 per week threshold.

Zoe Rose, Head of London Lettings, said: “Our London lettings network of offices has bucked the trend, reporting a year-on-year transactional increase of 61%. We foresee a continued supply shortage of rental properties as tenant demand increases.”

Forecast: Still looking up for 2014

Strutt & Parker and its retained economic advisors Volterra are predicting 4.5% growth for residential house prices in PCL in 2014 (compared to 8.0% for the UK as a whole).

Stephanie McMahon continued: “The Prime central London market is particularly difficult to forecast because it is made up of a wide range of locations and price ranges. For example, transaction levels in the £2-5m price bracket have remained high in Q2 2014; although there is some evidence that volumes have dropped in the £10m+ category.”

“The economic foundations would certainly suggest that prices may continue to rise at the same rates over the next few years, but the biggest perceived uncertainty surrounding the PCL market over 2014-2015 will continue to be the looming election and the possibility of a mansion tax. We therefore expect that price growth during the remainder of 2014, and even more so in 2015, will be sensitive to prevailing political press and expectations.”

Andrew Scott, Partner, Head of London Residential, concludes: “The effects of the election are clearly being felt across the market, as usual everyone is wondering if this is the start of some big slide that will see billions wiped off values overnight. Contrary to what the nervous might think, I have seen London getting stronger and more sought-after over the past 30 years – so panic not, it is just an election.”

View the full London Residential Quarterly Report.