Confidence Returns To Prime Property Markets - Savills

One of the country’s highest profile high-end property consultancies says confidence is returning to prime markets after a turbulent year, with almost all prime markets experiencing an easing in price falls over recent months. 

Prime regional house prices fell by just 0.8 per cent on the quarter, an improvement on the 1.5 per cent fall seen in both Q2 and Q3 2023. This leaves values down 4.8 per cent year on year and 6.1 per cent from their Q3 2022 peak.

In prime central London, values fell a marginal 0.2 per cent in the final quarter of the year, an improvement on 0.5 per cent in Q3. This market has remained markedly more resilient – with annual falls totalling just 0.8 per cent on average. While domestic outer prime London markets closed the year down 1.2 per cent.

“The source of buyers’ funding has become a key determinant in the performance of micro markets,” says Frances McDonald, director, Savills residential research. 

“Broadly speaking, 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 prime forecast

Prime Central London most resilient in 2023  

Prime West London – including Brook Green and Ealing – was the top performer in Q4 with values remaining flat, driven by a greater alignment between buyer and seller expectations, according to Savills.

However, prime central London has seen the smallest fall in values in 2023 (-0.8%), underpinned by cash buyers, and is expected to be the first market off the blocks growth wise in the New Year.

“Cash is continuing to play a pivotal role across prime London, with more than half of Savills agents agreeing that they are seeing the biggest demand from cash buyers (76 per cent of sales in PCL). This has resulted in higher value properties – synonymous with cash and equity rich buyers – remaining the most steady on the quarter” continues McDonald.

“But, despite increased optimism, with the majority of agents (79 per cent) expecting to see stock increase in the next three months, realistic pricing among sellers will remain vital in propping up prices over the coming months.”

Confidence creeps back into mortgaged markets

Values in the most heavily mortgage-dependent prime suburban (including Northwood and Loughton) and inner commuter markets such as Amersham, Tunbridge Wells and Sevenoaks performed the best in Q4, slipping just 0.5 and 0.6 per cent respectively. While these markets remain the most affected on an annual basis – down 5.6 per cent (suburban) and 6.2 per cent (inner commute) – values appear to have rebased quickly in the face of higher borrowing costs but are now holding up best.

“As mortgage rates begin to stabilise, we have seen some confidence return to the prime markets. Prices over the last three months have fallen at the slowest rate yet this year, signalling that we are reaching the bottom of the prime market. In particular those markets which reacted quickest to higher mortgage rates via price corrections are now falling the slowest and are seeing the highest levels of demand” comments McDonald.

Key regional cities outpace rural areas

Key regional city centres, including York, Cambridge, Bath, Bristol and Oxford held up strongest in comparison to their surrounding areas over 2023, says Savills.

Outlook for 2024

Prime central London is the only market not forecast to experience a dip in values in 2024. Price growth of 3.5 per cent is expected in 2025 as the global economy picks up more significantly and any domestic political instability that the next general election causes subsides.

“With values still well below historic peaks, prime central London represents a buy” continues McDonald. 

“Recovery looks well overdue though at around 19 per cent in the five years to 2028, we expect it to be much less aggressive than in previous cycles given a higher tax environment and greater scrutiny of sources of buyer wealth.

“For the prime regional markets, price falls are expected to continue easing and will total just 1.5 per cent over 2024 as a whole. The trends seen so far in 2023 are likely to continue next year with debt-dependence very much dictating market performance. That means prime markets closest to London, most notably the suburban and commuter hotspots, where a higher proportion of buyers use a mortgage, will see more significant price falls in 2024 and lower five-year price growth than the likes of North England, Scotland and Wales.”