Greater stability in the mortgage markets has encouraged more domestic buyers back to the outer prime London markets, whilst prime central London remains steady having held up more strongly since 2022.
Frances McDonald, Director, Residential Research
Following 18 months of economic turbulence and higher interest rates, prime London’s residential markets showed signs of recovery in the first three months of 2024, after bottoming out at the end of last year.
Prime property in outer London experienced growth of 0.8% in Q1, the strongest quarterly performance for two years, as greater stability in the mortgage markets encouraged more domestic buyers back to the market. Family house markets in the likes of Battersea, Clapham, Ealing, Fulham and Victoria Park were among the strongest performing.
Flats in outer prime London have also begun to recover, with values rising by 0.7% in the past three months, after five successive quarterly price falls.
In prime central London, while values remained broadly flat (0.1%) in Q1 2024, this represents the first positive quarterly price movement since mid-2022. Values are now down by just -0.6% over the past year and by a total of only -1.2% since the mini-budget in September 2022.
Less reliance on mortgage debt means this part of the market has generally remained more resilient in the wake of higher interest rates. More political uncertainty surrounding the upcoming general election and plans to abolish non-dom status, as announced in last month’s budget, means buyers are likely to remain cautious.
As we enter the typically busier spring market, the vast majority (71%) of Savills London agents are expecting stock levels to increase. This means sellers will need to continue to be realistic on pricing, particularly as buyers begin to have more choice.
Activity across London has also picked up so far this year with agreed sales across all price bands net of fall throughs 24% higher in the first quarter than the same period last year, according to TwentyCi data. Activity by this measure was also 15% above the pre-pandemic level, highlighting that demand is now exceeding historical norms.
The £300,000 to £500,000 and £500,000 to £1 million price bands saw the biggest uptick in activity when compared to last year. Buyers at these price points are more likely to be using mortgage debt and so improved rates have led to increased demand.
The top end of the market, particularly above £2 million, remained much more resilient throughout 2023 as cash and equity-rich buyers remained more active. As a result, the recent uptick has been less pronounced in this price band.
This also tallies with our March buyer and seller survey which showed a further pick up in prospective buyers’ commitment to move, particularly amongst those reliant on debt. It also showed early signs that buyers’ budgets are beginning to rise, especially those looking to upsize and take on more mortgage finance.
Our own data also shows that 5.2% more new applicants registered with Savills London offices than in Q1 2023.
Last month’s budget saw a surprising move from the Conservatives as they announced their plans to abolish non-dom status.
This move was expected to come with a change in government and so changes have essentially been brought forward with the benefit of some transitionary arrangements and concessions that may not have been the case under Labour.
This will likely have most impact in prime central London where demand from international, high and ultra-high net worth individuals is concentrated. Some may seek advice and review what their changed tax position means for their longer-term plans.
As a result, parts of prime central London are likely to remain price-sensitive for a little while longer.
Mortgage markets have improved more quickly than expected so far in 2024. However, some caution remains and we’re unlikely to see a sustained improvement in market conditions until the Bank of England begins to cut base rate. Oxford Economics is forecasting a cut to 5% in June, with two further 15 bps cuts before the end of the year.
Prime London’s more discretionary markets are also likely to be more muted in the run-up to the general election, particularly those reliant on international demand.
Recent trends seen across prime London are likely to continue, with debt dependence dictating the market performance of different property types and locations. But once rates improve more significantly, the recovery from those most reliant on mortgage debt could be more pronounced, as has already been the case in the first few months of the year.
< View our latest Q1 2024 updates here.
For more information, please contact your nearest London office or arrange a market appraisal with one of our local experts.