Prime country house prices rose by 0.7% between July and September, continuing the modest upward trend of growth that started in early 2013. Prices have shifted upwards now for eleven consecutive quarters.

Annual growth also rose slightly to 2.7% on average, up from 2.3% in Q2 but down from a recent high of 5.2% in 2014.

The market continues to feel the impact of the increased cost of stamp duty, following the Autumn Statement in December 2014. This continues to weigh on both price growth and activity at the top end of the market.

In fact, the latest figures from the Land Registry show that between January and July there have been 35% fewer sales with a value above £1.5m outside of London compared to the same period last year.

The prime market below £1.5m has been less affected by these tax changes.

Illustrating this fact, prices for homes in the prime market valued under £1.5m have risen by nearly 4% annually over the year to September. In comparison, over the same time properties priced above £1.5m, the point at which the 12% rate of SDLT kicks in, have risen by 2%.

Under £1.5m, price growth has generally been underpinned by demand for homes in urban centres. Price growth in town and city markets including Bristol, Bath and Oxford for example, where buyers continue to be attracted by good schooling, amenities and transport links, has outperformed the wider prime market.

There remains a significant price differential between property prices in the prime country market and in London, while anecdotal evidence from agents suggests that there is pent up demand from buyers in the Home Counties and the South West. This could help underpin prices and an increase in activity levels across the market as the year progresses.

The average prime country house price is still 14% below its 2007 peak. In contrast, prime prices in London are, on average, 34% higher than their previous peak values. The rise in London prices in the last few years means that buyers looking to swap the city for the country are able to get a lot more property for their money, with such buyers able to take advantage of the relative “discount” which currently exists.

BUYERS CONTINUE TO ABSORB STAMP DUTY CHANGEPrime country house prices continue to grow, but tax policy is starting to have an effect at the top end of the market.

Key headlines from Q3 2015Prime country house prices increased by 0.7% in the third quarter of 2015

Annual growth stands at 2.7%

December’s stamp duty change continues to have an effect on the market above £1.5m

The price differential between the prime London and the prime country markets remains significant

FIGURE 1

Prime country price growth Annual and quarterly change in prime country property values

FIGURE 2

Prime London v Prime Country price differential Nominal price change since Q1 2007

Source: Knight Frank Research Source: Knight Frank Research

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PRIME CENTRAL LONDON

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‘07 ‘08 ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 ‘15

RESIDENTIAL RESEARCH

PRIME COUNTRY HOUSE INDEX

OLIVER KNIGHT Residential Research

“ The country house market continues to feel the impact of the increased cost of stamp duty. This continues to weigh on both price growth and activity at the top end of the market.”

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 Q3 2015

RECENT MARKET-LEADING RESEARCH PUBLICATIONS

Knight Frank Research Reports are available at KnightFrank.com/Research

UK housing market and economic overview

RESIDENTIAL RESEARCH

UK RESIDENTIAL MARKET UPDATE

“ The dynamics of the residential market in one town may differ from another town just 20 miles down the road, not to mention the dynamics implied by national average data.”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

MIXED MESSAGES ON THE MARKET A divergence in house price indices are giving a mixed picture of the market, yet there is broad agreement that stock levels dipped over the summer. In prime central London, prices continued to ease in August although there is a significant divergence in price performance between local markets.

Key facts September 2015UK house prices rose by 0.3% in August, and are up 3.2% year-on-year

Prime central London prices are up 1.7% on the year

Prime country home prices climbed 2.30% to the end of Q2, with outperformance in urban markets such as Winchester, which has seen growth of 6.3%

Households expect more price growth, although market remains regionalised, according to latest House Price Sentiment Index

House price indices Annual % change, 3-month moving average

Source: Knight Frank Research / Macrobond

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Source: Knight Frank Research / Macrobond

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How price trends differ House prices (indexed 100 = 2000)

Source: Knight Frank Research / Macrobond

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House price indices, which track the value of homes across the country, using a variety of data and methodologies, have been painting a slightly different picture of the market in recent months as the chart above shows.

While Halifax shows an uplift in prices over the summer, this is not reflected so emphatically in Nationwide data, which, like Halifax, monitors mortgage approval data. The last significant divergence between these two ‘similar’ indices in

the 1990s was explained by the Bank of England as probably occurring because of the different ways these indices are “mix adjusted” to take account of the different characteristics of houses bought and sold in any one month. The ONS, which looks at a larger selection of mortgage data also indicates a continued slowing in price growth to date this year, as does the Land Registry, which reflects all sales completed in England and Wales.

Over the long run, it is possible to see that the indices broadly move together, but the recent divergence is attracting attention as the market heads into the busier Autumn period. The question for all considering a sale or a purchase is “is it a sellers or a buyers market?”. The answer is not clear-cut.

While UK average house prices are a useful broad-brush indication of how the market is performing, they do not accurately reflect local markets. The dynamics of the residential market in one town may differ from another town just 10 or 20 miles down the road, not to mention the dynamics implied by national average data.

UK Residential Market Update Sept 2015

The Wealth Report 2015

Prime Country Review Summer 2015

£1M+ MARKET NATIONAL PARK PREMIUMPOST-ELECTION MARKET UPDATE

PRIMECOUNTRYREVIEW UK PRIME COUNTRY HOUSE MARKET SUMMER 2015

RESIDENTIAL RESEARCH

Knight Frank Prime Country House Index

Cottage Farmhouse Manor House Unweighted average

2013 Q4 1.7% 1.8% 0.9% 1.4%2014 Q1 3.3% 2.4% 0.5% 1.9%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%

2013 Q4 5.3% 3.7% 1.0% 3.1%2014 Q1 7.7% 5.5% 1.4% 4.5%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%

2013 Q4 221.8 250.9 226.3 232.2 2014 Q1 229.0 256.8 227.5 236.5 2014 Q2 232.7 259.4 229.2 239.0 2014 Q3 232.1 259.2 230.0 238.9 2014 Q4 234.3 259.3 229.4 239.3 2015 Q1 236.6 259.8 232.7 241.4 2015 Q2 240.2 261.8 234.3 243.7

2015 Q3 243.5 263.1 235.1 245.3

Source: Knight Frank Residential Research

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Important Notice © Knight Frank LLP 2015 – 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 KnightResidential Research+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

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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The Rural Report Autumn 2015