According to the Q3 prime market index by Savills, prime London markets are standing strong against rising interest rates, outpacing the mainstream markets. How do the numbers stack up?
- Prime central London saw a price drop of -0.5% over the quarter and -1.2% over the year.
- On the other hand, the outer prime London locations, which are often chosen out of necessity rather than luxury, recorded a more pronounced fall of -0.9% in Q3 and -2.5% annually.
To put this into perspective, the UK mainstream market experienced a more significant decline of -5.3% in the year leading up to August, as reported by Nationwide.
Regional Prime Movements
To better grasp the nuances, let’s break down the prime regions:
Table 1: Growth Analysis by Prime Region
| Prime Region | Q3 2023 Quarterly Growth | Q2 2023 Quarterly Growth | Annual Growth | Growth since Mar-2020 |
|---|---|---|---|---|
| PCL | -0.5% | -0.1% | -1.2% | 0.9% |
| North West | -0.8% | -0.3% | -1.5% | 5.5% |
| South West | -1.3% | 0.0% | -2.5% | 6.9% |
| West | -0.2% | -0.2% | -2.0% | 5.4% |
| North & East | -0.8% | -0.5% | -3.2% | -1.8% |
| All Prime London | -0.8% | -0.2% | -2.1% | 3.0% |
Source: Savills prime London index, Q3 2023
Market Reality: The Importance of Realistic Pricing
While the prime market has shown relative sturdiness this year, it’s not entirely untouched by months of escalating rates combined with wider economic and political ambiguities. Frances McDonald, director of Savills residential research, emphasizes that there’s likely still some downward pressure on prices due to these uncertainties.
However, there’s hope on the horizon. As interest rates level out with expectations of a reduction next year, buyer sentiment could get a much-needed boost.
A noteworthy point is the mismatch between buyers’ and sellers’ pricing expectations. While a majority of agents (53%) report that buyers are hoping for a 5% to 10% discount on a home, half of the sellers (50%) expect to drop their prices by just 0% to 5%. Bridging this discrepancy is crucial for sustaining market activity.
Houses vs Apartments: A Widening Gap
An interesting trend that’s surfaced over the past quarter is the differing trajectories of houses and apartments within prime London. Houses are proving to be the more resilient asset, particularly in North and East London regions like Victoria Park, Islington, and Hackney. Here, they’ve seen positive growth (+0.7%) year-on-year in Q3, largely credited to limited stock and heightened demand.
In contrast, apartments, more vulnerable to rising interest rates, have seen prices fall across all prime London areas.
Cash Continues to Reign Supreme
Cash transactions still dominate the higher-end of the Prime Central London market, particularly in the £5-10 million bracket. This segment has outperformed its counterpart, the sub-£2 million market, with the former seeing a marginal -0.6% dip compared to the latter’s -1.7% yearly decline.
With mortgage borrowing largely optional in these markets, many affluent buyers have the luxury to purchase with cash or low loan-to-value ratios, especially as interest rates climb. But, it’s essential to remember that not all prime markets have the same depth of cash and equity reserves.
To conclude, while challenges remain, especially in bridging buyer-seller price expectations and navigating rising interest rates, the prime London market continues to exhibit resilience.