Recent data indicates that prime UK residential markets are close to reaching their lowest point, as the rate of price declines has notably slowed in the last three months.
In prime central London (PCL), the decrease in values has slowed to just -0.8% year-on-year. A significant factor in this market’s resilience is the high proportion of cash buyers; 76% of PCL sales in 2023 were made without financing.
Regions that adjusted prices quickly in response to rising borrowing costs, particularly London’s suburbs and the inner commuter belt, showed stronger performance in the last quarter. Overall, confidence is returning to prime markets after a challenging year, with most areas seeing a reduction in the pace of price falls in the final quarter of 2023, as reported by Savills.
Prime regional house prices fell by -0.8% in the last quarter, improving from the -1.5% drops seen in both Q2 and Q3 2023. This leaves values down -4.8% year-on-year and -6.1% from their Q3 2022 peak.
Frances McDonald, director of Savills residential research, notes the importance of funding sources in market performance: “The prime markets are less reliant on borrowing than the mainstream and more responsive to sentiment. These results point to a market that has all but levelled out, something that could happen in the first few months of 2024, ahead of their mainstream equivalents, unless we see a major shift in policy.”
Savills’ Q4 prime index results and 2024-2028 forecast show varied growth and decline across regions, with prime central London expected to be the most resilient in 2023. Prime West London areas like Brook Green and Ealing saw values remain stable in Q4, driven by alignment between buyer and seller expectations. However, prime central London has experienced the smallest overall fall in values in 2023 (-0.8%), attributed to the dominant role of cash buyers in the market.
McDonald adds: “Increased optimism is seen, but realistic pricing among sellers will remain vital in propping up prices over the coming months.”
In mortgaged markets, suburban and inner commuter areas like Amersham, Tunbridge Wells, and Sevenoaks performed best in Q4, with minor slips in values. These areas, most affected annually, appear to have quickly rebased their values in response to higher borrowing costs but are now showing resilience.
Andrew Perratt, Savills head of UK residential sales, highlights the recovery of city locations: “With commuting back in full swing, connectivity is back up buyers’ wish lists, underpinning values in inner city locations. Prime markets are expected to recover quicker than their mainstream equivalents in 2024.”
The outlook for 2024 suggests prime central London will not see a dip in values, with a 3.5% growth expected in 2025. McDonald concludes: “With values still well below historic peaks, prime central London represents a ‘buy’. Recovery is expected to be less aggressive than in previous cycles due to a higher tax environment and greater scrutiny of buyer wealth.”
