Prime country house prices rose by 0.3% on average in the first quarter of 2016, taking annual growth to 2.4% – down from a high of 5.2% in 2014.

The easing of price growth since 2014 reflects a greater sensitivity to pricing from buyers in the prime market following successive increases in stamp duty that culminated in the changes introduced in December 2014.

This was followed by an announcement in November 2015 that buy-to-let investors and those purchasing second homes would be subject to an extra three percentage points on the rate of stamp duty from April 2016.

While the impact of the initial reform in December has been to subdue prices as well as activity, in the prime market, the November announcement has acted as a catalyst for some buyers looking to forestall a higher tax bill.

This contributed to a notable rise in activity in the first three months of 2016, with Knight Frank figures showing a 24% rise in sales volumes across the

prime country market compared to the corresponding period of 2015.

During this time, activity has primarily been concentrated on the sub-£1 million market (figure 2), boosted further by a growing economy and continued low interest and mortgage rates.

Accordingly, sub-£1 million homes experienced the strongest price growth, rising by over 4% over the last 12 months, more in line with the wider housing market. In contrast, homes worth £5 million or more saw values fall by 2.7% over the same period, with the higher transactional costs increasingly factored into pricing.

Knight Frank forecasts price growth of 3.0% on average in 2016. Key town and city locations are likely to outperform, as the trend for urban living continues to grow and more Londoners make the move out of the capital.

In the short term, uncertainty surrounding the outcome of the EU referendum could have an impact on the market, causing some buyers to adopt a wait-and-see approach until after the vote.

SALES VOLUMES PICK UP AHEAD OF STAMP DUTY CHANGEPrime country house prices have been rising for 13 consecutive quarters.

Key headlines from Q1 2016Prime country house prices rose by 0.3% in Q1 2016

Annual growth has eased to 2.4%, down from a high of 5.2% in 2014

Sub-£1 million homes have outperformed, rising by over 4% annually

Sales volumes in the first three months of 2016 were up by nearly a quarter year-on-year

Knight Frank forecasts price growth of 3.0% across the prime country market in 2016

FIGURE 1

Price change Annual and quarterly change in prime country property values

FIGURE 2

Prime country sales split by price band Q1 2016 v Q1 2015

Source: Knight Frank Research Source: Knight Frank Research

201520142014201220112010-6%

-4%

-2%

0%

2%

4%

6%

8% ANNUAL % CHANGEQUARTERLY % CHANGE

sub-£1m £1m-£2m

£2m-£5m £5m+ Q1 2015Q1 2016

sub-£1m £1m-£2m

£2m-£5m £5m+ Q1 2015Q1 2016

sub-£1m £1m-£2m

£2m-£5m £5m+ Q1 2015Q1 2016

sub-£1m £1m-£2m

£2m-£5m £5m+ Q1 2015Q1 2016

RESIDENTIAL RESEARCH

PRIME COUNTRY HOUSE INDEX

OLIVER KNIGHT Senior Analyst

“ The stamp duty announcement in November 2015 has acted as a catalyst for some buyers looking to forestall a higher tax bill”.

Follow Oliver at @oliverknightkf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

PRIME COUNTRY HOUSE INDEX Q1 2016

Important Notice © Knight Frank LLP 2016 – This report is published for general information only and not to be relied upon in any way. Although high standards have been used in the preparation of the information, analysis, views and projections presented in this report, no responsibility or liability whatsoever can be accepted by Knight Frank LLP for any loss or damage resultant from any use of, reliance on or reference to the contents of this document. As a general report, this material does not necessarily represent the view of Knight Frank LLP in relation to particular properties or projects. Reproduction of this report in whole or in part is not allowed without prior written approval of Knight Frank LLP to the form and content within which it appears. Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.

For the latest news, views and analysison the world of prime property, visit

KnightFrankblog.com/global-briefing

GLOBAL BRIEFING

RESIDENTIAL RESEARCH

Oliver KnightSenior Analyst+44 20 7861 5134 oliver.knight@knightfrank.com

Gráinne GilmoreHead of UK Residential Research+44 20 7861 5102grainne.gilmore@knightfrank.com

PRESS OFFICE

Jamie Obertelli +44 20 7861 1104 jamie.obertelli@knightfrank.com

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In his Budget speech this month, the Chancellor George Osborne warned that there were headwinds facing the UK economy. He described a “cocktail of risks” including turbulent financial markets, slowing global economic growth and low productivity in Western economies. As such, forecasts for economic growth in the UK were revised down, from 2.4% to 2% this year, and to 2.2% from 2.5% in 2017. However, he said the UK was still on course to be one of the strongest growing economies in the G8.

RESIDENTIAL RESEARCH

UK RESIDENTIAL MARKET UPDATE

“ Across the UK the fundamentals of a lack of supply and low mortgage rates are underpinning the market”.Follow Gráinne at @ggilmorekf

For the latest news, views and analysis on the world of prime property, visit Global Briefing or @kfglobalbrief

GRÁINNE GILMORE Head of UK Residential Research

BUDGET UPDATEThe Chancellor revealed details of how the extra 3% stamp duty charge on additional properties will work in his Budget, two weeks before the rules come into effect on April 1st. Meanwhile, property values across the country ticked up in February, while the annual growth for prime central London property remains fixed at around 1%.

Key facts March 2016UK house prices ticked up 0.3% in February, taking annual growth to 4.8%

Prime central London prices fell by 0.1% last month. Values are up 1.1% year-on-year

Prime central London rents are down 0.2% year-on-year

Households across the UK expect prices to rise over the next 12 months

The Budget also revealed the detail of how the extra 3% stamp duty for additional dwellings will work when it comes into force on April 1st.

A key change was that the ‘exemption’ window for those buying a new principal residence before selling their previous home or for those replacing their main home having already sold their previous principal residence was extended from 18 to 36 months.

While such buyers will still have to pay the additional tax upfront, it effectively doubles

the time they have to claim a refund should they sell their previous main residence.

One of the biggest surprises was that large-scale investors in rental property will not be exempted from the additional stamp duty charge in England, Wales and Northern Ireland. This seems to run counter to the Government’s pledge to support build-to-rent, but we expect that investment in this sector will continue. There is more detail on the Budget announcements in Global Briefing, the research blog.

Meanwhile, the housing market received a fillip from increased activity among those looking to beat the April 1 deadline for the additional stamp duty charges. Demand rose in many regions, with the CML reporting that gross mortgage lending in February hit the highest level since 2008.

Activity may ease from April, but in the wider UK market the fundamentals of a lack of supply and low mortgage rates are underpinning the market. In the London and South East markets the effect of uncertainty in the run-up to the EU Referendum is likely to be felt more keenly.

Economic and housing market overview

Annual UK average house price change

Source: Knight Frank Research / Nationwide

-20

-15

-10

-5

0

5

10

15

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

%

Changes to the UK SDLT forecast

Source: Knight Frank Research / OBR

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2020

-21

2019

-20

2018

-19

2017

-18

2016

-17

2015

-16

JUL-15NOV-15MAR-16

UK Residential Market Update Mar 2016

UK Prime Country Review - Winter 2015

RISE OF URBAN PRIME PROPERTY TAX UPDATEMARKET UPDATE

PRIMECOUNTRYREVIEW UK PRIME COUNTRY HOUSE MARKET WINTER 2015

RESIDENTIAL RESEARCH

Knight Frank Prime Country House Index

Cottage Farmhouse Manor House Unweighted average

2014 Q2 1.6% 1.0% 0.8% 1.1%2014 Q3 0.8% -0.1% 0.3% 0.3%2014 Q4 1.0% 0.0% -0.3% 0.2%2015 Q1 1.0% 0.2% 1.5% 0.9%2015 Q2 1.5% 0.8% 0.7% 0.9%2015 Q3 1.4% 0.5% 0.3% 0.7%2015 Q4 1.1% 0.4% 0.4% 0.6%

2016 Q1 1.9% 0.0% -0.4% 0.3%

2014 Q2 8.2% 6.2% 2.5% 5.2%2014 Q3 7.6% 5.2% 2.5% 4.7%2014 Q4 6.8% 3.4% 1.4% 3.4%2015 Q1 4.4% 1.2% 2.3% 2.5%2015 Q2 4.4% 0.9% 2.2% 2.3%2015 Q3 4.9% 1.5% 2.2% 2.7%2015 Q4 5.0% 1.9% 2.9% 3.1%

2016 Q1 6.0% 1.7% 1.0% 2.4%

Source: Knight Frank Research

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DATA DIGESTThe Knight Frank Country House Index is a valuation based index, compiled quarterly from valuations prepared by professional staff in every Knight Frank Country House office in the UK. The index is based on the valuation of a comprehensive basket of properties throughout all UK regions based on actual sales evidence. Knight Frank tracks the performance of three country house property categories; cottages, farmhouses and manor houses. A typical manor house comprises a large property standing in extensive grounds. A typical farmhouse has six bedrooms, several acres of land including garden, paddock and barns. A typical cottage has about one acre of land, is detached, and has four bedrooms.

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