For many buyers, when it comes to bedrooms in the home, three is the all-important number. It’s practical for a growing family, ideal for downsizers and future proof for couples. However, there is an increasing price gap in the market between two and three-bedroom properties in the capital due to stamp duty levels, a particular issue in some parts of London.
Guy Gittins, Head of Residential Sales at Chestertons takes a look at values of three-bedroom properties in prime central London, specifically in Chelsea, and also in a more residential market, in Fulham.
“In both locations, we are not seeing a premium in price per square foot. They are roughly commanding the same price per foot - the premium that is attached is because there is an extra bedroom and, more than likely, an extra bathroom.
The average price for a two-bedroom property in Chelsea is approximately £1.2 million. For a three-bedroom property prices are in the region of £1.75 million. It is a big jump on capital sum, but it is a step that hasn’t been an issue for buyers to make in the past. The biggest problem is the huge hike in stamp duty.
For a £1.2 million property in Chelsea, buyers have to find an extra £63,000 or £99,000 if they have another property elsewhere. For a £1.75 million three-bedroom property, it goes up to £123,000 in stamp duty or £167,000 if it is a second home. Chelsea is an affluent London postcode and the price tag of £1.75 million is quite obtainable for residents. However, having to suddenly find a huge additional amount of cash for stamp duty is really difficult for buyers to stomach. They cannot mortgage against it, it is extra cash they have to find, and once it has been paid it disappears with no perceived value.
“Looking at Fulham, a very different market, the average two-bedroom apartment is currently priced around the £700,000 mark. The average three-bedroom apartment is £900,000. If buyers then want a house with outside space, then the house does demand a premium on price per square foot. The value of the property is naturally higher as you move from an apartment into a house. Prices for a three-bedroom house would be approximately £1.1 million and the stamp duty would be £53,000 or £87,000 if the buyer has another property.
“The more central you go the gap between two and three-bedroom properties becomes much greater. In the majority of cases, it is not the difference of taking the jump up the property ladder or the mortgage affordability, the bigger issue is the enormous increase in stamp duty.”