Often regarded as marching to its own unique drum, the Prime Central London (PCL) property market continues to defy broader market trends.
As house prices decline across the UK, average price falls in the PCL market have been less significant, falling by just 1.4% in the 12 months to August, according to Knight Frank.
This contrasts with the Halifax House Price Index, which reports a wider market decline of 4.6% over the same period.
In some instances, areas of the capital even saw a rise in house prices, with Knightsbridge enjoying a 1.3% increase.
Meanwhile, the number of exchanges in prime London during July and August sat at 15% above the five-year average, compared to a 4% drop across the whole country.
London continues to maintain its position as the world’s strongest regional housing market, but how can we explain its remarkable resilience? The answer lies in a blend of factors.
London’s appeal
The London lifestyle plays a significant role in attracting buyers, with the city offering something for everyone.
It boasts world-class shopping, the West End, and iconic landmarks like Buckingham Palace, Big Ben, and Westminster Abbey.
It’s no wonder that in 2023, London ranked as the third most-visited city globally, welcoming 19.2 million international travellers, according to MasterCard’s Global Destinations City Index.
While, like other countries, the UK has experienced its fair share of inflationary pressures over the past 12 months, its lasting appeal to buyers remains evident.
Britain, and particularly London, continues to be one of the world’s leading financial and legal hubs and is at the forefront of the tech industry.
Recent data from London & Partners shows that the capital remains one of the world’s top destinations for tech companies seeking expansion, attracting more new international tech companies than any other global city in the past decade.
This only adds to the allure of the capital for PCL property buyers.
Unique motivators
The motivations of PCL clients often differ from those of other buyers, however. They can be less reliant on mortgage debt, looking for investments or status symbols, rather than their first family home.
While cash rich prospective PCL buyers are not immune to rising mortgage rates, they may not encounter the same financial constraints as a typical mortgage client.
Many High Net Worth (HNW) individuals are asset-rich but choose to utilise a mortgage to retain cash and assets. These reserves can often be accessed when opportunities arise, enabling them to counter rising rates with a larger cash injection.
Demand remains high
When we look at the current house price falls in PCL property, it’s also important to consider the developments of the past few years.
When compared with other parts of the country, properties in the capital, including the PCL, did not see the same price increases during the COVID-19 pandemic.
As a result, the current downturn in prices is less pronounced. We even now see confidence returning to the market as uncertainties around the stability of London’s financial sector subside. Indeed, the long-term outlook for the London prime market remains incredibly positive, with Savills predicting an impressive 13.5% increase in PCL property prices by 2027.
Limited space in the capital, along with planning and building constraints and the necessity to preserve the city’s historic landscape, means there is also a lack of scope for new properties in PCL.
This has seen demand remain high in the most sought-after areas, even in times of economic uncertainty. Figures from London estate agent Benham and Reeves reveal demand increased by 2.5% across the London prime market in Q2 of this year.
Its findings show that Islington is the most sought-after location in the core prime market, followed by Richmond and Chiswick. Wapping has seen the largest quarterly improvement in market activity, closely followed by Canary Wharf. HNW investors are always on the lookout for a good deal, and even slight price reductions, like the ones we are seeing now, can be enough to entice them to buy.
While buyers might exercise caution in the current high-interest rate environment, they may still see this as an opportune moment to buy, especially if a property’s price has declined. Given the projected future price increases over the next four years for PCL property, clients may still regard it as a sound long-term investment and tap into their cash reserves in order to reduce their loan-to-value (LTV) and exposure to higher rates.
HNW individuals might have their own unique reasons for buying, but they are just as likely to seek the advice of a broker. Factors such as foreign currency, complex income streams, and existing property portfolios are among the considerations that may need to be addressed for PCL clients, making a specialist HNW broker well-equipped to assist advisers with such deals.
Alex Smith is senior adviser and team leader at Capricorn Financial Consultancy
