Markets further from London, where mortgage affordability is least stretched, have been most robust, with properties in the Midlands and North, Scotland, and the South of England beyond the commuter zone seeing the smallest price adjustments
Stephanie Thomson - B2C Residential Research Analyst, Residential Research
House prices in the UK’s prime regional markets fell -1.4% on average in Q4 2022, down from the 0.3% growth seen in Q3. This reflects a noticeable change in sentiment in the market, with more caution amongst buyers given sharp increases in the cost of mortgage debt. Yet all regions recorded positive growth over 2022 as a whole (2.2% overall), and prices remain 14.8% above their pre-pandemic values on average.
Our recent survey indicates that buyers and sellers have become more realistic after two years of record growth which has continued to support transactional activity.
Figures from TwentyCI suggest that – having regard to both seasonality and fall-through rates – the number of newly agreed sales of £1m+ property returned to almost 80% of the levels seen in the first nine months of the year in December. By the same measure, they had fallen -35% in the immediate wake of the events of late September. Meanwhile, in the market over £2m, they proved more robust, falling by only -14% across the quarter as a whole.
Geographically, markets further from London, where mortgage affordability is least stretched, have been most robust, with properties in the Midlands and North (-0.1%), Scotland (-0.7%), and the South of England beyond the commuter zone (-1.1%) seeing the smallest price adjustments.
These regions were typically the strongest performers throughout the pandemic, attracting equity-rich buyers from London and the commuter zone during the so-called “race for space”. As a consequence, average prime prices in the wider South of England remain 17.3% above where they were prior to March 2020.
On the other hand, the relocation and mortgage-dependent markets closer to London have more keenly felt the effects of the increase in the cost of borrowing. Prime properties in London suburban locations and across both the inner and outer commuter zones have seen price falls of -2.1%, -1.6% and -2.2%, respectively, over the past three months. But, again, this is following a period of strong price growth, meaning values in the suburbs are still 16.5% higher than in March 2020 and up by 12.7% across the commuter belt.
The country house market also proved to be more robust than other parts of the prime regional housing market. With a higher proportion of cash buyers and fewer opportunities for the wealthiest buyers to acquire their dream homes, this part of the market has been less affected by rising interest rates.
These properties recorded price falls of just -0.4% on average in Q4, and the number of potential buyers registering an interest were 47% higher than in the same period in 2019. So, although the frenzied activity seen during the pandemic has cooled, demand is still strong for best-in-class properties in the most sought-after locations. Indeed county houses across the Cotswolds and East of England continued to see modest house price growth in the quarter.
Although the imbalance between demand and supply persists in the regional market, the economic challenges have put buyers’ spending power under pressure, and this will temper demand over 2023. We are forecasting prices in the prime regional market to be -6.5% down on average by the end of the year, leaving values where they were in mid-2021. The increased cost of borrowing is likely to have a stronger impact on those markets which typically take on more debt. For example, London’s suburban and commuter zones are expected to see average prices fall by -8.0% by the end of 2023.
But, for the moment at least, the quantity of premium stock available to buy remains constrained, with nearly half of Savills agents reporting a decrease in stock over the past three months, which will cushion price falls in the short term. And our recent client survey indicated that there is still a strong commitment to move over the next 24 months, which will help support a recovery in prices over the medium term once we pass a period of elevated interest rates.
< View our latest Q4 2022 updates here.
For more information, please contact your nearest regional office or arrange a market appraisal with one of our local experts.