Summer loving

According to TwentyCi, the number of agreed sales during June, July and August in the market above £1 million was 81% above normal pre-pandemic levels. In comparison, activity across the mainstream housing market saw transaction levels return to pre-Covid levels. Some of that can, of course, be put down to there being more homes worth over £1 million than before the start of the pandemic. But even accounting for that, the market remained surprisingly buoyant.

That said, as summer has turned to autumn, so we have seen an increased sense of caution among most buyers which has been exacerbated by recent events.

Autumn leaves

Homes that are best in class have continued to attract competitive bidding, not least because they have been in short supply for most of this year. However, levels of buyer registrations and viewing numbers have become somewhat less frenetic.

Furthermore, our most recent client and applicant survey shows less urgency among prospective buyers in the prime domestic markets. The rising costs of debt are impinging on the budgets of those reliant on a mortgage, while the increased cost of living is making them more conscious of the running costs of a new property.

Indeed, even in late August, 29% of prospective buyers said these factors had reduced their budget, and a net balance of 10% of upsizers said they had become less committed to moving in the next six months, even though they remained positive about doing so over the next two years.

The most recent results of our prime property price indices are testament to this. They strongly suggest that however keen sellers are to cash in on the price growth of the past two years, setting an ambitious asking price, sitting back and seeing what happens will become a much, much riskier strategy in the coming months.

Money, money, money

Driven more by flows of global equity than the cost of domestic debt, central London has benefitted from an increase in demand from buyers in the Middle East and North America to support strong transactional activity. Yet, despite a widening currency play given the weakness of sterling relative to the US dollar, sustained price growth is yet to take hold. In a market that continues to look very good value in a historical and international context, a recovery in prices looks increasingly dependent on prospects for domestic and global wealth generation and, correspondingly, the easing of global macro-economic pressures.

Elsewhere, all eyes have been, and will continue to be, on inflation and what this means for domestic interest rates. Though buyers of prime property are less exposed to these pressures than those in the mainstream market, they are still affected by them (as we examine here). And while the recent relaxation of mortgage regulations will give more flexibility to lenders over the medium term, sentiment among buyers and lenders alike is still going to be dictated by shortterm financial factors, including the accessibility and cost of mortgage finance. With this in mind, the key questions are how much further the Bank of England will increase interest rates and how long they will keep them at elevated levels to keep a lid on inflationary pressures.

Wake me up when September ends

The uncertainty around that issue is likely to mean that despite the strong activity during summer and early autumn, the heat will come out of the primarily domestic markets over the next three to six months. It also points to a further delay to the long-awaited recovery in the prime central London market.

Only as and when inflation has been tamed, the cost of debt eases and we see a pick-up in both domestic and global economic growth, can we expect price growth to return to these markets, to reflect buyers’ underlying commitment to move over the medium term.