Signs of life return to UK property market

5 minute read

Lower mortgage rates, a city living resurgence and cash buyers are all boosting sales. Read on to discover key trends and expert insights.

Forget the gloomy forecasts of just a few months ago1 – it seems the UK property market is finally shaking off the negativity.

And could the possibility of lower interest rates, now glimmering on the horizon, potentially inject further life into this recovering market?

While we can’t predict the future, one thing’s for sure: the UK property scene has adjusted its tempo. Gone are the days of dizzying price gains, replaced by a steadier, and arguably more sustainable, pace.

“The market is finding its new rhythm,” says Stephen Moroukian, Head of Product and Proposition for Real Estate Financing at Barclays Private Bank and Wealth Management. “While a touch of guarded confidence is emerging, finding common ground between buyers and sellers will be crucial as they adapt to this evolving landscape.”

Prime London: a return to grandeur?

A glimmer of hope is also shining on prime central London. After years of stagnation,2 iconic neighbourhoods like Knightsbridge, Mayfair and Chelsea are poised for a comeback. Knight Frank is predicting a surge of 18% in property values over the next five years in these ultra-prime areas,2 a significant jump from their previous 8% forecast.1

“If you look at the prime London market, we’re basically at the low ebb – prices are down around 17% since the 2015 peak,”2 says Stuart Bailey, Head of Prime Central London Sales at Knight Frank.

“But with all the economic data that’s now coming in and mortgage interest rates coming down, a shift is brewing, and we anticipate prices to increase. They won’t skyrocket, though – they’re likely to rise gradually, mirroring their slow decline.

“Buyers should consider acting. The opportunity to make informed decisions without undue pressure might not last long. Enquiry levels are already rising, while new listings are dwindling – suggesting a potential shift from a buyer’s market to a seller’s market within the next year.”

Cash buyers step in

Despite a national price decline (2.1% in the past year, according to the Office for National Statistics)3 cash buyers are driving pockets of growth. This follows a post-pandemic boom, where some regions, especially rural ones, saw prices jump 20% or more.4

“Cash buyers are dominating the market, making up over 40% of all transactions5 – and that figure is higher for prime locations, especially central London,” says Frances McDonald, Director of Residential Research at Savills.

“Usually, cash buyers make up around a third of all transactions.5 And, obviously, it’s a good time to be a cash buyer in a flat market, but things will likely rebalance as mortgage rates start to decline.”

Bailey at Knight Frank concurs: “Cash buyers are getting some good deals and they’re certainly playing a big part in the prime central London market, but many would prefer to use debt. I suspect they'll convert to mortgages when the debt market favours them again.”

Quality still shines

Interestingly, as the pandemic exodus loses its steam, city living has revived – reigniting the appeal of London and other vibrant hubs. Amidst this shift, though, one thing remains constant – "best-in-class" properties have shone brightly throughout.

“Your top-tier properties continue to fetch record prices,” adds Bailey. “A 10 out of 10 property is always going to get a 10/10 premium price, but it’s your 7/10 properties, they’re not achieving the 7s and the 8s any more: instead, they’re settling for 5s or 6s. The market is certainly rewarding excellence.”

A luxury squeeze?

Another factor in play in prime central London are the new planning rules imposed by local councils, putting pressure on spacious living. Westminster has taken the strictest approach with a 200 square metre limit on newbuilds, while Kensington and Chelsea, who haven't set a specific size limit, are looking to restrict “over-size units”.6 Others, such as Camden Council, are also following suit – creating uncertainty for developers and potential buyers alike.

And the impact is likely to be substantial: Savills research reveals that since 2021, nearly two-thirds of all £5 million+ newbuilds sold in London have exceeded the 200 square metre limit imposed by Westminster.6

“Basically, it’s putting a size limit on new homes that can be built,” says McDonald at Savills. “And it’s impacting not just developers, who can’t build those big ‘lateral’ flats anymore, but it’s also pushing demand towards existing properties. With fewer large units available, we could see prices rise in the second-hand market for these more-sought-after homes.”

Cautious confidence

To sum up, it’s not quite a boom – more a sigh of relief. But the UK property market is certainly finding its feet once again, buoyed by falling mortgage rates and an urban resurgence, as well as the return of international investors seeking safe harbours.

“Last year, many of our clients held back, waiting for market stability – but now, they’re actively planning purchases with a firm commitment to action, as well as international interest returning,” says Jo Eccles, Founder and Managing Director of Eccord, a London-focused buying agent.

“A disconnect had existed between buyer expectations and seller demands, limiting deal flow. But that price gap has narrowed, which is creating some exciting opportunities.”

Geopolitical tensions and an upcoming UK election could also further complicate property choices. Although at least political analysts are downplaying any major policy shifts this time around, regardless of the outcome (in contrast to the uncertainty surrounding the 2019 general election).

“We all need to navigate this evolving landscape with prudence, but electoral anxieties or global events needn’t paralyse your property decisions entirely,” adds Moroukian at Barclays Private Bank and Wealth Management.

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