The housing scene in the UK’s prime markets has been witnessing a steady value decrease over the last year. Savills’ quarterly prime residential index reports that these markets, which represent the uppermost 5% to 10% of homes in terms of value, experienced a contraction for four consecutive quarters ending September 2023, leading to an average annual plunge of 5.2%.

However, the top-end of Scotland’s housing market persisted in its resistance, maintaining steady values, which showcased a modest year-on-year dip of -1.1%. The sudden cooling off of the UK’s prime markets began over two years ago, a phase that marked the final roaring echoes of robust house price growth. Two key factors – increasing interest rates alongside broader inflationary pressures – have severely impacted buyers’ budgets, particularly those reliant on borrowing.

Despite some gains from recent years being eroded, the situation isn’t all doom and gloom for the prime markets. With many locations offering limited housing stock and equity reserves providing a safety net, values continue to be about 10.5% over what they were in March 2020.

Scotland – A Prime Property Powerhouse

Emerging later from the pandemic’s clutches than the rest of the UK, Scotland’s late blooming has resulted in a 16.1% increase in prime market house prices compared to March 2020. This staggering upward curve designates Scotland as the strongest performing region in the UK. However, it’s crucial to mention that this performance is increasingly governed by top-tier properties, suggesting that realistic pricing is key to securing a sale, as with the rest of the UK.

To put these numbers into perspective, let’s consider a home bought right before the first lockdown for a million pounds. On average, across prime UK markets, it might have touched a peak value of £1,166,000 a year ago. Even with the current slowdown, the home’s worth is still at a lucrative £1,105,000 – an overall profit of £105,000. However, if this property were situated in Scotland, those same calculations would showcase a remarkable peak earnings of £174,000, which currently stands at an impressive £161,000. The greatest gain in the UK has been across the broader South, peaking at £192,000 in September 2022, although it has dropped back significantly to £134,000 in the past year.

Dissecting Regional Dynamics

Frances McDonald, Savills residential research director, brings us compelling insights: Prime markets furthest from the bustling capital appear to be faring better, as suburban and commuter belt markets feel the brunt of the strains. This situation particularly affects the high value, mortgage-dependent markets, bracing for the impact of increasing commuting costs, among other factors, following a flux of buyers moving out from London.

However, locations like Beaconsfield and Henley are proving exceptions to these general trends, maintaining their attractiveness for young professionals and families. Unfortunately, many suburbs and commuter belt areas around London are subjected to the squeeze from rising borrowing costs, witnessing values drop between 6.5% and 7.1% over the past year. Despite an overall -2.1% contraction across prime London, these areas, popular amongst those seeking more space, are feeling the downturn more acutely.

Perhaps unsurprisingly, current market trends demonstrate that lower-value properties are showing the most price resilience. This suggests that even the prime markets, fuelled largely by capital cash and equity, aren’t impervious to the effects of surging borrowing costs and larger macroeconomic currents.

Cash Purchases: A Growing Trend

Savills’ analysis emphasises the increasing relevance of cash in the prime market across all regions. The cost of borrowing is causing a larger proportion of transactions to be completed mortgage-free or with a low loan-to-value ratio. McDonald adds to this, revealing that post-prime central London, the wider South of England experienced the lowest mortgage utilisation levels, only 31%. The prime suburbs and the commuting zone experienced the steepest falls in mortgage use over the past year, reflecting the bite of affordability pressure.

The Unique Cases of Cotswolds and Prime Coastal Locations

Markets that drew major attention and substantial price growth during the lockdown, such as the Cotswolds and prime coastal regions, have begun to behave differently. The Cotswolds, within part-time commuting distance from London and still lacking in housing stock, has seen prices dip just -3.4% year on year. In contrast, the average prime coastal values have experienced a larger drop of -6.4%.

Facing the Country House Market Realities

The country house market revival was perhaps one of the most talked-about outcomes of the pandemic. The return to familiar working routines has, however, slackened the unprecedented surges seen here over the past year, especially in regions that saw a significant influx of buyers from London.

The UK-wide, year-on-year downturn in value for country houses was -5.7%, with the South East encountering a steep decrease of 9.4%. On the brighter side, Scotland continues to shine, with a mere -1.0% downturn in prices year on year. The key to navigating these changing currents, according to Phillippa Dalby-Welsh, head of Savills’ country house team, is making properties as attractive as possible and setting realistic pricing guidelines. Doing so could indeed buck the trend, even in these challenging times.