Prime London property values are not falling as far as the rest of the market but realistic pricing will be crucial in the coming months, according to Savills.
The agent’s third quarter prime market index found prices in prime central London fell by a marginal 0.5% and 1.2% on the year, while more ‘needs-based’ outer prime London locations fell by 0.9% on a quarterly basis and by 2.5% annually.
This compares to falls of 5.3% in the year to August across the UK mainstream market, according to the latest Nationwide House Price Index.
The prospect of house price falls and wider market uncertainty is having the biggest impact on buyer sentiment across London’s prime property market, overtaking increasing interest rates, according to the latest research from Savills.
While there has been growing acceptance from sellers that prices have fallen from pandemic highs, buyer expectations on price are still markedly lower than sellers, with the majority of agents (53%) reporting that buyers are expecting to pay 5% to 10% less for a home, while they believe half of sellers (50%) only expect to get zero to 5% less.
Frances McDonald, director of Savills residential research, said: “Prime markets have remained comparatively robust this year but our latest data indicates that prime London is not immune to months of rising rates and a wider economic and political uncertainty, which is still likely to put downward pressure on prices. Although the levelling off of interest rates and expectations of falls next year should go some way to inspire some confidence and support transactions.
“For all but the very best properties, buyers and sellers are as much as 5% apart on price. Closing this gap will be crucial in maintaining activity levels for the remainder of the year, with those most prepared to be realistic on price likely to garner the best end result.”
Meanwhile, the top-end of the prime central London market where cash plays the biggest role – properties worth £5m to £10m - is continuing to outperform the lower end of £2m or below, with prices in the latter falling by 1.7% on the year compared with 0.6%, according to Savills.
McDonald added: “Mortgage borrowing is largely discretionary in the prime central London markets, and so we saw an uptick in borrowing when interest rates were at historic lows during the pandemic. Now these markets are benefiting from affluent buyers’ ability to transact with cash or low loan to value ratios as rates have risen.
“But not all prime markets are underpinned to the same extent by reserves of cash and equity.
“Prime family house markets of South West and West London, in particular, are typically more highly leveraged and deals here are becoming increasingly price sensitive.”