It’s not Trump or Brexit shackling London home sales

London house prices are a national obsession, but a Brexit or Trump headline gives the story an extra dimension. Coverage of all three subjects is likely to intensify in 2017, so it seems like an appropriate moment to examine how close the links are between house prices, the UK’s decision to leave the European Union and the new US President.

First, let’s look at prime central London (PCL), where you would expect the biggest impact to be felt. When looking at Knight Frank’s PCL index, it recorded a -6.3 per cent decline in 2016 with headlines about falling prices in London’s most expensive postcodes. But this was caused rather to the mundane stamp duty and not the EU referendum.

Two other factors are behind the slowdown, neither of which involves the 45th President of the United States. First, the market has paused for breath to some extent following an exceptional period of growth between 2009 and 2012.

Second, ultra-low interest rates mean more homeowners are able to sit tight, reducing the turnover of properties. Admittedly, some buyers and sellers will hold off for Article 50, but this should be put in context. For every person waiting, there will be somebody impatient to move after the stamp duty-induced slowdown.

Similarly, while transaction volumes were relatively weak last summer, the EU referendum was only part of the story. The lull followed one of the biggest spikes on record in March ahead of a stamp duty hike in April. So, Brexit cannot be discounted as having no influence in a slowing market, but its impact is dwarfed by other factors.

However, it has had an effect in other ways. Sterling has weakened markedly since the referendum, strengthening the buying power of those denominated in overseas currencies. A US buyer moving to prime central London (PCL) would benefit from an effective discount of 22 per cent in the year to December 2016 given currency and house price movements.

We’ve seen that for our Middle Eastern clients, the currency play has had a large impact upon their choice to now purchase in the UK, with the obvious considerable savings being a key decision maker.

For signature properties we’re also seeing high demand, and for some unique properties, for example, in Mayfair, we’ve seen price per square foot records reached.

Despite the compelling statistic, a section of buyers are waiting for the bottom in terms of the exchange rate, and this is where Donald Trump comes in. His ideological support for Brexit will inevitably have some bearing on the wider process, but a more direct effect on PCL would be if the dollar weakened as part of any drive to stimulate US trade.

It could reverse any currency discount and underlines how the waiting game is a high-risk strategy given the volatile political backdrop.

Safe-haven market

Two other points are worth bearing in mind. First, any future trade deals may strengthen demand from signatory countries. Second, London’s appeal as a safe-haven market could rise if global geopolitical uncertainty persists.

To date, the impact of Brexit (and Trump) has been even smaller in the rest of the UK, where a multi-speed recovery is under way. Urban markets in particular have fared better, depending on their local economy.

However, that is not to say there will be no second-round effects from Brexit, depending on what happens to inflation, wage growth and interest rates. To date, any Brexit effect on the property market has been minimal.

To assess which UK markets are performing most robustly as Brexit talks get under way, Knight Frank has analysed how far they have recovered since the 2008 recession, stripping out the effects of inflation.

It is probably no surprise that London dominates the list. Even the top three performers outside the capital are the commuter zones of Kingston, Watford and St Albans.

Furthermore, the London results themselves reveal an interesting trend. The top performer in the country was Herne Hill (SE24), with 60 per cent price growth since 2008, and three of the top six property markets are in southeast London, including neighbourhoods like Brockley and Peckham, where families have moved due to affordability constraints elsewhere.

But still the fundamentals behind the UK remain the same. It’s a global safe haven, with a transparent legal system and the destination of choice for many HNW individuals especially from the Middle East who wish to live, base their businesses or educate their children.

The writer is a Partner at Knight Frank Middle East operations.