Even if the government can convince financial markets that they over-reacted and mortgage rates calm down, the housing market's sentiment has been damaged and people have been reminded that the era of ultra-low borrowing costs is ending.
Higher mortgage costs will reverberate up through housing markets and be felt in prime London postcodes. However, the impact will be less marked due to higher levels of affluence and housing equity as well as a broader base of returning international buyers. This is particularly the case in prime central London (PCL), where the percentage of cash buyers in the first nine months of this year was 52%, compared to 30% in prime outer London (POL).
That said, we expect prices to fall by 3% next year in PCL before rising modestly in subsequent years. The relative value in PCL compared to 2014 will underpin an overdue recovery in the medium term. While we expect a 4% decline in POL, the ‘race for space’ trend has not yet run its course and will support demand beyond 2023. In both cases, the reductions would reverse the price growth seen over the course of 2022.
For now, activity and price growth remain positive. The number of new prospective buyers in PCL and POL was 53% above the five-year average (excluding 2020) in September. Supply has also been picking up after being subdued for most of last year. The number of new sales instructions was 22% above the five-year average and the number of offers accepted was up by 79%.
As explored here, prime London markets have spent the last few months in the sort of sweet spot that doesn’t last forever. While we expect demand and price growth to come under pressure in the coming months as mortgage rates remain high, there are no apparent signs yet.
Annual growth in PCL was 2.7% in September while the figure recorded in POL was 5.2%, both figures that have remained broadly the same for the past six months.
