Global financial markets and UK homebuyers have both been in risk averse mood lately.

The unpredictability of US trade policy combined with some shaky economic data drove stock markets lower and borrowing costs higher on both sides of the Atlantic last week. The price of gold, traditionally a safe haven asset, reached record highs.

Coming on top of pre-existing concerns about the UK’s tight financial headroom, the result is that most UK mortgage rates remain stubbornly on the wrong side of 4%.

Underlining the mood of hesitancy, buyer demand posted a net balance of -14% in February, according to the latest RICS survey last week.

The figure, which is the difference between the percentage of respondents reporting an increase and those reporting a decrease, was the lowest since November 2023. April’s stamp duty increase also explains softer buyer sentiment, RICS said.

Despite the dip, equity-rich, needs-driven markets continue to show resilience.

Higher borrowing costs and lower house price growth are one reason that fewer £1 million property markets have been created, according to Knight Frank’s annual look at UK locations crossing the threshold.

To qualify, at least 20% of sales had to be above £1 million in two or more quarters in the year to September 2024. This cannot have happened in a single quarter over the previous 12 months.

Cambridge (CB3), Chichester (PO18) and Winchelsea (TN36) are the three markets that met the criteria this time which compares to 11 locations last year.

Why the fall?

Last time round, demand was underpinned by sub-3% mortgage offers that pre-dated the mini-Budget in September 2022. Offers are typically valid for six months.

The other reason for the decline is that house price growth has increasingly moved away from London and south-east England, areas of the country where the £1 million threshold is closest to being crossed.

In the five years since the first UK lockdown March 2020, average prices in north-west England have risen by 30%, according to the Nationwide. That compares to 13% in London and 20% in south-east England. Stronger house price growth has generally taken place where affordability is less stretched.

Two of the three locations are close to the sea. Demand in coastal areas was boosted by the pandemic and remain in-demand as buyers recalibrate their work/life balance.

“The enduring appeal of waterfront living has significantly bolstered property values in areas like Chichester and Winchelsea,” said Hamish Humfrey, head of national waterfront at Knight Frank. 

“Their relative proximity to London enhances their appeal, providing an accessible retreat from urban life without compromising convenience. The limited availability of waterfront properties in these regions further intensifies demand, leading to notable increases in value.”

Ignoring the 20% threshold test, the UK location outside of central London that saw the biggest jump in £1 million-plus sales (minimum of ten) between the two periods was Hindhead (GU26), where the figure climbed from 15% to 25% of all transactions. 

That was followed by Sevenoaks (TN14), which went from 9% to 16%, Hitchin (SG4), which rose from 3% to 10% and East Dulwich (SE22), where the number of £1 million-plus sales increased from 26% to 32% of the total.

We expect more £1 million markets to be created over the next 12 months as UK house prices are predicted to grow by an average of 2.5% in 2025. 

However, that forecast is dependent on what the Chancellor says in the Spring Statement next week.

Creating more financial headroom would be positive for the housing market by putting downwards pressure on borrowing costs. But not if it’s achieved through tax increases that simultaneously curb demand.

Tom Bill is head of UK residential research at Knight Frank