Amidst a period of change and instability, characterised by high inflation and rising interest rates, there has been considerable speculation about the prospect of a significant downturn for the UK property market. This has certainly extended to the prime central London (PCL) market, too.
Much of the data emerging from the property market in the first few months of 2023 was not particularly encouraging, especially after prices hit new highs in November 2022. In April, for example, HMRC data showed that seasonally adjusted residential transaction levels in the wider UK market were estimated to be 25% lower than a year before, while house prices had fallen by £8,000 from their November peak, fuelling predictions of further declines.
However, these predictions may fail to materialise in the PCL property market. Savills data shows that average house values mostly remained flat (a 0.1% increase, technically) in Q1 2023. Further, with inflation finally falling into single figures, many are now suggesting that the market is stabilising.
Is positivity returning?
This suggestion has been corroborated by some recent market data, which indicates that positivity is returning to the wider property sector. Indeed, the most recent Nationwide data from April showed that UK house prices experienced a growth of 0.5%, reaching £260,441, following a downward trend in the last seven months.
Along with Zoopla’s house price index, which showed that prices have only dropped by 1.3% in the six months to May (despite considerable turbulence), this data suggests that earlier predictions of a market crash were overstated.
Supporting the notion of a shifting sentiment towards positivity in the market, a recent survey conducted by The Royal Institution of Chartered Surveyors (RICS) revealed that the percentage of RICS members who observed decreases and increases in house prices increased from minus 43 in March to minus 39 in April; thus implying that fewer surveyors reported house price declines compared to the previous month.
Meanwhile, other Zoopla data found that agreed home sales hit their highest point of the year in May, climbing by 11% on the five-year average, while prices fell less quickly than the month before as buyer confidence continues to experience something of an uptick.
The data does not, of course, point to a market that is flourishing. But the figures do underline the resilience of the market, hinting that any downward trends may soon subside.
Much of this robustness can be attributed to the stabilisation of the mortgage market, in which approvals increased from 39,600 in January to 43,500 in February this year. In turn, this has imbued a sense of recovery in the UK property market, and Zoopla argue that if mortgage rates remain stable at their current level it expects its price Index to place annual UK house price growth between +2% and -2% this year – a far cry from the 9% declines put forward by the OBR in Q4 2022.
The PCL market is particularly robust
If we focus in on the prime central London (PCL) market, we can observe similar indications of recovery, particularly within the higher echelons of the market. Largely, this is due to the resilience and consistent performance of the property sector in the capital.
According to Knight Frank analysis, for example, super-prime properties had their best year since before the Brexit referendum in 2022. In fact, between March 2022 and March 2023, a total of £3.1 billion was invested in 116 super-prime properties, surpassing the £2.5 billion spent on 144 transactions in the preceding year. This suggests that uncertainty stemming from the Brexit vote is gradually diminishing, and the lingering impact of the pandemic is subsiding as international buyers have re-entered the market.
Meanwhile, despite the challenges of the last year, recent findings from a study by Tyburn, a property consultancy, provide further evidence of a more positive outlook for the capital’s property market. The data revealed that London achieved record-breaking sales of properties priced above £5 million in 2022, with a notable 70% of these transactions originating from new-build developments. This indicates that London remains an attractive destination for both overseas and domestic high-net-worth buyers, resulting in sustained demand in the market.
Similarly, further Knight Frank data shows that the number of new prospective buyers in Q1 was 35% higher than the five-year average (excluding the 2020 lockdown). Providing a much-needed boost of optimism, this demand should support prices this year despite the economic headwinds that remain, particularly as supply remains low in the capital.
Lenders can catalyse the market’s recovery
As the economy continues to stabilise, we could see more evidence of the market bouncing back in the months to come. However, for those of us in the property and lending sectors, complacency could be detrimental to the market’s recovery, so we must continue to be proactive in helping property buyers confidently navigate the challenges that the economy still presents.
Indeed, whether it is through fixed-rate products, flexible repayment options, or less rigid lending criteria, lenders have to deliver the certainty, flexibility and customer service that our clients require in the current climate. In doing so, we can contribute to the continued reinvigoration of both the UK and PCL property markets as positivity returns.
Alpa Bhakta is the CEO of Butterfield Mortgages, a London-based prime property mortgage provider with a focus on the needs of UK and international HNWIs.
Butterfield Mortgages Limited is authorised and regulated by the Financial Conduct Authority (Financial Services Register number: 119274).
