During a general cooling in the UK property market, the upper echelon of London’s real estate is proving to be an exception. Wealthy buyers, largely unaffected by the mortgage cost hike, are continuing to invest substantial cash in the city’s most luxurious residences, providing stability in what has otherwise been an uncertain time for property investors.
Unfazed Wealth: The Resilience of Cash Transactions
In 2023, the allure of London’s most prestigious addresses hasn’t waned for the affluent, despite a broader slowdown across the UK’s housing sector due to escalating mortgage expenses, as per insights from estate agency, Savills. This year witnessed the exchange of 390 properties priced at or above £5 million in the capital, from January through September. While this figure falls short of the 459 transactions in 2022 — a standout year for upscale properties — it’s a significant 67% jump compared to the pre-pandemic average observed from 2017 to 2019.
Among these high-value transactions, 120 were for properties worth £10 million or more, soaring 50% above the pre-pandemic average. “Despite prevailing economic headwinds, prime markets have demonstrated impressive strength,” explains Frances McDonald, head of residential research at Savills.
Prime Locations: The Epicentres of Luxury Sales
London’s affluent neighbourhoods such as Chelsea, Kensington, and Belgravia were at the forefront, accounting for one-third of all sales involving properties valued at over £5 million. The first nine months saw a cumulative sales volume of £4.3 billion in this high-end segment. Interestingly, sales activity exhibited an uptick in the third quarter, contributing £1.7 billion to the total, indicative of a reinvigorated interest among buyers as the year progressed.
McDonald attributes the surge primarily to cash transactions. Wealthy investors have reverted to their pre-pandemic practice of cash purchases after a brief interlude of capitalizing on low-rate mortgages during the Covid-19 crisis.
A Contrast: The Wider Market Endures a Slump
While London’s luxury property thrives, the broader UK housing market is experiencing a deceleration, precipitated by consecutive interest rate hikes by the Bank of England that have led to pricier borrowing costs. Property giant Zoopla anticipates this year to be the slowest for the housing market in over a decade.
Current mortgage rates compound this trend, with the average two-year fixed residential mortgage rate climbing to 6.37%, a stark increase from 5.33% merely six months prior, as reported by Moneyfacts. Additionally, the discontinuation of a government initiative aimed at assisting first-time homebuyers has further dampened market enthusiasm.
However, central London continues to defy the odds. While property prices have slightly receded by 1.2% year-on-year in the third quarter, this dip is modest compared to the 2.5% fall witnessed in outer London and the 2.8% decrease across the UK since March 2022, as per data from Nationwide.
The Rise of Luxury Apartments
In a noteworthy shift, nearly half of the properties sold for £5 million or more this year were apartments, the highest proportion since Savills initiated its data collection in 2012. Alex Christian, joint head of Savills private office, notes, “The apartment sector is primarily driven by international cash buyers, often acquiring their first London property, while houses tend to attract UK residents or global citizens who are well-established in London, making repeat purchases as their family dynamics change.”
The International Influence: North American Investors
North American investors, in particular, have been instrumental in buoying London’s premium property market this year, motivated by a robust dollar that provides more purchasing power. This trend underscores the global appeal of London’s real estate, even as domestic factors introduce volatility into the wider market.
In summary, while the general UK property market faces its set of challenges, London’s high-end real estate segment remains a beacon of resilience, buoyed by cash-rich buyers who see enduring value in the city’s prime locations. Their influence helps steady the market, providing a semblance of stability amidst broader economic uncertainties. For prospective investors, this underscores the importance of strategic property selection and staying informed on market trends, especially in times of wider financial fluctuations.