Since we last reforecast in July, the UK’s prime housing markets – broadly the top 5 to 10 per cent by value – have experienced a surge in sales and buyer demand that led to price growth ahead of expectations. However, the market remains price sensitive and we have reviewed our expectations on pricing across the prime markets over our 2020-2024 five-year forecast period.

Prime central London

Across the highest value markets in central London we anticipate that the value on offer, particularly given the weakness of sterling and the 21 per cent price falls recorded since 2014, will minimise any further price falls in the short term.

We are assuming that a vaccine for Covid-19 is found next year which could open up the market but this is unlikely to be before 1 April when the new stamp duty surcharge for non-UK domiciled buyers is due to be implemented. While that may temper any bounce in values next year, we expect PCL to show the strongest growth (+4.0 per cent) of any of our prime markets in 2021 given the levels of pent-up demand.

These new forecasts are supported by a surprisingly robust performance by the most exclusive housing markets of London, particularly given international arrivals into the UK are at a fraction of their normal levels. In the first three quarters of 2020, despite the long weeks lost to lockdown, there were 12 per cent more £5 million+ sales across London than in the same period in 2019.

This highlights that central London still retains its status as a desirable location for the global wealthy. It may also indicate that we are beginning to see some activity brought forward in advance of the stamp duty introduction.

A stronger recovery in values is likely to take hold in 2022, once international travel has returned to more normal levels, London has regained its ‘buzz’ and stamp duty changes have worked their way through the market.

Longer term, global wealth generation will be the primary driver and the perceived stability of a bricks-and-mortar investment in the sought-after parts of the capital.

Revised five-year prime capital values forecasts

Outer London

Outer prime London is likely to see stronger levels of growth this year (+2.0 per cent) but doesn’t have the same capacity for a sustained bounce in values given the underlying concerns over the strength of the domestic economy. 

However, total growth over the next five years is anticipated to be a little higher than we previously forecast given lower expectations around interest rates. Buyers are likely to have more equity than in the mainstream markets, possibly making them a lower risk option for lenders who we know remain particularly cautious at the moment.

In the short term at least, family houses with outside space are expected to perform better than flats and smaller houses as a result of a change in patterns of demand.

Beyond London

Further lockdown restrictions in the short term will likely give greater urgency to buyers’ search for a lifestyle change and a better balance between their work and home lives. As such, we have upgraded our forecasts for the markets beyond London and are forecasting growth of +3.0 per cent on average this year. 

Renewed Brexit uncertainty poses a risk to the strength of the recovery towards the back end of this year but we have retained our assumption that a trade deal is negotiated at some stage over the next six months. Though the stamp duty holiday has had a negligible impact on the top end of the prime market, it will still support demand across the prime markets in the first quarter of next year as buyers seek to avoid paying any additional tax.

The biggest increase in five-year numbers is within the South of England given an anticipated flow of money out of London, due to lifestyle changes – though most of this is likely to occur in the near term. Here, well-connected villages and towns are expected to perform especially well.

The rural, country house and coastal markets are also well overdue a recovery and have performed strongly so far this year because of the shift in lifestyle requirements.

Later in the five-year period we expect the pattern of regional growth to reflect where values were prior to Covid-19 with Scotland, the Midlands/North and wider South being the top performers from 2022 onwards.

London's £5million+ sales rebound

Further information

Contact Frances Clacy

Contact Savills Research