Prime London sales market resilient but true test will come in spring
February 2023 PCL sales index: 5,449.2
February 2023 POL sales index: 277.2
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The strong start to the year shows little sign of faltering.
After a weak final quarter in 2022, due to the mortgage market chaos unleashed by the mini-Budget, price declines in prime London markets appear to be bottoming out.
Average prices were flat on a quarterly basis in prime central London (PCL) in February, which compares to the decline of 0.6% recorded in the three months to December.
Meanwhile, prices in prime outer London (POL) recorded their first monthly rise (0.2%) in February since September.
The average rate for a five-year fixed mortgage is headed below 4% after spiking above 6% in the aftermath of the mini-Budget. Financial markets took fright at the inflationary potential of the previous government’s low-tax economic plans, but nerves are settling under new prime minister Rishi Sunak.
That said, double-digit inflation has led to successive bank rate hikes and pushed mortgage costs higher. This time last year a five-year fix was priced below 2%.
Demand remains strong against the relatively stable economic backdrop and the number of new prospective buyers registering the first seven weeks of the year in London was 28% higher than the five-year average. Meanwhile, the number of new sales instructions was 36% higher.
It mirrors what is happening across the UK, where the property market has made a better start to the year than expected.
That said, activity is stronger in higher price brackets where there is less reliance on mortgage debt. Around half of sales in PCL are in cash, as we explored recently.
The number of exchanges above £2 million was 66% above the five-year average in January. Below £2 million, the increase was 12%. Meanwhile, the number of new prospective buyers above £2 million was 52% higher, while the rise was 20% in the sub-£2 million bracket.
“Nerves have settled and the aftershock of the mini-Budget is dissipating,” said Rory Penn, head of London sales at Knight Frank. “However, the true test of strength across all price points will be the spring market.”
Spring is when sales volumed traditionally increase and the price expectations of sellers will be properly put to the test.
On an annual basis, average prices were essentially flat in February in PCL, rising by just 0.9%. While there was a decrease of 0.5% below £1 million, there was a rise of 2.1% between £5 million and £10 million, reflecting the relatively stronger performance of the market in higher price brackets.
Meanwhile, there was an increase of 3% in POL. An increase of 1.8% below £1 million compared to a rise of 4.4% above £5 million.
We expect prices in PCL to outperform most UK markets over the next few years, according to our latest forecast. The prediction is underpinned by the higher percentage of cash buyers, currency discount for overseas buyers and the fact prices remain 15% below their last peak in August 2015.