As the mortgage markets improve, confidence has returned to the prime regional markets outside of London. This has seen values bottom out over the first three months of the year as market conditions stabilise.
Katrina Fyfe, Analyst, Residential Research
In the first three months of 2024, following a period of high borrowing costs and economic uncertainty, greater stability has returned to the prime markets.
With values remaining flat following five consecutive quarters of price falls, it is our view that the UK’s prime regional markets have bottomed out. Since the mini-budget in September 2022, rising debt costs and financial pressures have caused prices to fall by an average of -5.9%. But, they remain 10.6% up on pre-pandemic levels.
As mortgage markets have improved, so too has buyer confidence. As a result, annual price falls have eased to -3.8% across all prime regional markets, an improvement on the -4.7% recorded last quarter. This also means that markets closest to London, such as the suburbs and inner commuter zones, have seen the smallest price falls during the past year.
With the pandemic almost a distant memory and the need for space less of a priority for buyers, many are now looking for better connectivity to commuting routes and closeness to local amenities.
This is supported by our March buyer and seller survey which showed that the proportion of those who ranked proximity to a train or tube station (30%) and to shops (38%) as the most important when thinking about their next home, has increased compared to March last year.
In the first three months of the year, urban areas continued to outperform. Prime property in cities such as Edinburgh, Glasgow, Bath and Oxford, saw values rise by 0.6% compared to those in rural areas, which fell by -0.2%.
Prime city markets also tend to have a greater proportion of smaller, lower-value properties which tend to attract demand from needs-based buyers such as young professionals. As mortgage costs have improved these more debt-reliant buyers have returned to the market.
Over the past few years, managing buyer and seller expectations has been important to maintaining activity levels in the prime markets.
Although there is still a gap in price expectations, over the first quarter of this year we began to see greater alignment. Almost half (48%) of Savills regional agents reported that sellers expected there to have been no change to the value of their home, while 39% reported that buyers’ budgets had remained unchanged.
Despite this shift, half of agents said that buyers expected to spend less while 21% reported that sellers expected the value of their home to have increased over the past three months.
As we enter a typically busier spring market, activity levels have picked up on the back of improved sentiment.
Over the first three months of 2024, UK agreed sales (net of fall throughs) across all price bands were 19% higher than the same period last year, according to TwentyCi data.
Compared to pre-pandemic levels (2017–19), activity was strongest in February 2024 with a 12% increase in net agreed sales, whilst March saw an uptick of 2%. In total, the number of agreed sales (net of fall throughs) was 6% above this benchmark.
New instructions across the UK were also 12% up on Q1 last year and 8% above pre-pandemic levels, signifying that confidence is returning to the market after a period of uncertainty.
This is also reflected in our agent survey where 88% of Savills agents reported an increase in stock levels over the past three months. As buyers continue to have more choice, sensible pricing will be all the more important.
Across the UK’s prime regional markets we have seen values bottoming out over the first three months of the year. Mortgage rates have come down quicker than expected and inflation appears to be heading towards the Bank of England’s 2.0% target.
This improvement in market conditions has seen confidence return but buyers are likely to remain cautious until a bank base rate cut, and therefore a more significant decline in debt costs, is on the horizon, particularly with the upcoming general election.
Throughout 2024 we expect buyers source of funding to continue controlling market performance. But as debt costs improve further, demand from those buyers more reliant on mortgages could see a stronger recovery.
Overall, we are expecting prices to continue improving as we move into the spring market, recovering over the medium term with price growth of 19% in the five years to 2028.
Prime regional forecasts
< View our latest Q1 2024 updates here.
For more information, please contact your nearest regional office or arrange a market appraisal with one of our local experts.