Prices for central London’s luxury homes are falling – but outer areas are becoming less affordable
London's luxury homes are set to have their prices cut by nearly 10 per cent this year, but prices in the capital's outer boroughs will continue to become less affordable, according to new research.
Property services giant Savills has predicted prices on high-end homes in central London will drop by nine per cent this year and won't return to growth until 2019.
Read more: Experts have promised London house prices will recover
The biggest factors weighing on the top end of the market are the Brexit vote, and two increases in stamp duty tax since 2014.
Savills said price reductions would be necessary to "secure sales as buyers wait to see how Brexit negotiations proceed, and the impact on the UK and London economy becomes clearer".
Lucian Cook, Savills' UK head of residential research, said: "The market will inevitably remain susceptible to fluctuations in buyer sentiment, but there is nothing to suggest the impact of the vote to leave will echo that of the global financial crisis."
He said to entice buyers back onto London's luxury property market, sellers would have to drop their prices by between five and 10 per cent.
Read more: House prices in Chelsea fell by nearly nine per cent last month
According to research from Knight Frank, government reforms to stamp duty have been responsible for a drop in transactions volumes in central London as investors seek to buy houses beyond Zone 2.
In areas such as Westminster and Islington, transactions have fallen 13 per cent and 11 per cent respectively over the five-year period to March 2016, and in both Camden and Kensington and Chelsea, transaction volumes were down seven per cent.
Tom Bill, Knight Frank's head of London residential research, said: "It is the first time this magnitude of decline has been registered in this many London boroughs since Land Registry records began in 1995.
Read more: Kensington & Chelsea clamps down on plans for joined homes
"If the pattern persists, the risk is that demand and property prices in outer boroughs will become further inflated and more susceptible to future price instability."
If the search for affordability, would-be home owners are avoiding the centre of London, but there has been additional pressure on house prices in outer areas from investors seeking shelter from high rates of stamp duty. Investors are now looking at areas such as Canary Wharf, Wimbledon and Belsize Park.