Cashing in on London is Britain's new property trend

Julian Knight reports on downpricing, where the capital's homeowners sell up to gain space or a better lifestyle

"You used to be able to sell a town house in a nice part of the capital and buy a rectory with some land in the countryside. Now, with the influx of foreign buyers into London, all that has changed: in recent years the same house will pay for two rectories," said Charles Ellingworth, director of the exclusive residential company Property Vision.

As someone who advisers buyers, mostly from overseas, where to purchase property in the UK for the best returns, Mr Ellingworth has had a front-row seat in what has been a dramatic transformation of London's and the wider UK's property market.

"Many have heard the stories of parts of central London such as Mayfair and Chelsea with rows of houses but no lights on, and it is true. Domestic buyers are priced out of the market. There are new riverside developments in Battersea, for instance, which are sold en masse in the Far East. There is no thought to them being lived in or even rented out," Mr Ellingworth added.

But where are all the people moving too who used to live in central London? Some, it seems, are moving a few miles down to still prime areas of the capital, where schools have improved and there is better bang for the buck in terms of space – a process some property experts are calling "downpricing".

"Many have been reluctant to leave London altogether because of the price differential between the capital and the rest of the country. They think that it is a one-way street, that somehow once the move is made that is that there is no way back," Mr Ellingworth said.

Nevertheless estate agents are reporting that families are beginning to escape to the country having sold in London. Trevor Kent, for instance, a former head of the National Association of Estate Agents and owner of Trevor Kent & Co in Gerrards Cross, says that there is now a steady flow of people moving out to the country. "It's one of the bigger groups of buyers behind older people looking to downsize. People are cashing in on the capital and that is beginning to seep out to the main commuter towns and cities," he said.

In fact, according to the latest Land Registry figures, house price inflation in London has abated of late, falling back into single-digit territory, but there has been a marked upswing in purchase prices in the South-east and South-west.

A report from the estate agency Savills shows that 38 per cent of buyers in what is termed the "prime regional market" are downsizing or "downpricing" from London. Downpricing is a phrase coined by estate agents to describe people who sell in a prime residential area and move to a similar or larger property costing less money.

According to Property Vision, Surrey in particular is enjoying a lift-off with Brits moving out of London to buy as well as more than a smattering of investment cash, particularly near the county's premier golf courses and leisure facilities.

The Cotswolds, which has always been popular with American buyers as well as Britons, hasn't quite yet attracted money from the Far East and Russia, but there are new high-class developments popping up aimed at capturing the second home and the "tired of London" market or those looking to cash in on the capital.

The Watermark development (www.watermarkcotswolds.com) on the picturesque lakes of South Cerney, in the Cotswold country park, is probably the most high-profile example of this. Twenty-five properties designed like homes from New England – in the very heart of England – are priced from £725,000 for four-bedroom places and rise to £1,175,000 for a six-bedroom and £1,200,000 for a seven-bedroom detached holiday home. All the properties are based near lakes, with the emphasis on a marine leisure lifestyle, including access to fishing, jet-skiing and boating.

In an unusual move for the UK market, plots are available for purchase with buyers then able to specify their own place as long it conforms to the overall ambience and look of the Watermark development.

Owners can even join the rental programme and hire out their homes to holidaymakers who are attracted by the peace and quiet and not having to brave the airports.

"At Watermark we have noticed an increase in interest from people looking to escape to the country and get more property for their money. By moving to a smaller home in London they can benefit from a pied-à-terre and comfortably afford to buy a three- to four-bedroom country home," says Jules Miller-Cheevers, sales and marketing director at Watermark Cotswolds.

Watermark can also work as a buy-to-let investment. With an average occupancy of 60 per cent annually, owners at Watermark with homes based on one of the lakes achieve a 6 and 8 per cent yield per year.

Mr Miller-Cheevers adds that many of the buyers into his development are not only looking to escape the rate race but also release some capital in order to spread around the family: "We know that housing wealth in the UK is now concentrated in the hands of the older generation, and as downsizing continues to gain momentum, a growing number of those approaching retirement are seeking to release wealth to assist their children to get on to the housing ladder. By moving from a four-bedroom to a two-bedroom home, owners would typically release £190,000 on average. The bigger the home, the more equity is released. A move from a five-bed to a three-bed home would release much more on average, over £450,000. "

This is a view echoed by Savills in its housing market report. "Such homeowners are thinking about lifestyle and preference when they decide to downsize. It's often a question of convenience and a desire to be nearer the family and young grandchildren. Typically they'll make the move in the run-up to retirement or immediately after, and they'll keep a certain amount of space to accommodate family visitors."