As pressure on buyers’ budgets increases, committed sellers need to price in a way that reflects the prevailing macroeconomic conditions
Frances McDonald, Director, Savills Residential Research
Higher mortgage rates have caused a continued softening of prime regional house prices over the three months to the end of June, as the market remains very price sensitive.
Average prime values fell by -1.5% in the second quarter, leaving them -3.5% lower than a year ago, yet still 12.1% up since the first Covid-19 lockdown in March 2020. As pressure on buyers’ budgets increases, committed sellers need to price in a way that reflects the prevailing macroeconomic conditions to achieve a sale.
Despite these pressures, new buyer registrations are currently standing up well to pre-pandemic levels. In June, they remained 17% above June 2019 across the UK’s prime regional markets. And while supply constraints have eased, stock levels are still -5% down over the same period.
In contrast to a prominent pandemic trend, city markets are proving more resilient than their rural neighbours. But the ‘move to the country’ trend looks to have slowed, as opposed to stalling completely.
The work-life balance of prospective buyers has had something of a reset over the past six months which has helped underpin values in prime city locations across the country. Ease of access to amenities, transport and work are once again priorities that trump lifestyle considerations for some buyers.
Over the past year, high-value housing in key regional cities saw price falls of just -1.4%, while village and rural house prices fell by -3.7% and -3.9%, respectively, eroding some of the sizeable gains of the past few years.
The impact of this rebalancing has been most keenly felt in the suburban and commuter markets – typically home to families and highly leveraged upsizers – where buyers have increasingly prioritised proximity to stations with direct links into London. The inner commuter belt, within a 30-minute train journey of London, recorded the most significant price falls over the past year of -5.2% on average.
By contrast, prime markets furthest from London, including the Midlands and North of England, Scotland and Wales, where mortgage affordability is least stretched, have outperformed with less downward pressure on prices.
The more discretionary country house market saw values slip by -1.5% in the second quarter and by -4.4% year on year, but these averages conceal significant regional variation.
In Scotland, the country house market represents good value relative to other locations and significant launches continue to attract strong buyer interest. As a result, the market recorded marginal 0.5% price growth in the quarter, a stark contrast to the South East of England where values fell by -4.9%.
In these discretionary markets, lifestyle considerations continue to trump more practical concerns. For example, properties in coastal locations recorded the smallest falls, down just -1.0% in the quarter, meaning values remain up 20.2% since the first lockdown in March 2020.
The mortgage markets settled much quicker than expected at the start of the year, but with rates accelerating again, we are starting to see increased price sensitivity, particularly, but not exclusively, in markets closest to London which are more reliant on borrowing. This means we are likely to see further pressure on pricing over the remainder of this year and into the next.
While we expect new buyers will be working with lower budgets, the measures that lenders have agreed to alleviate some of the financial pressures on existing borrows should limit the likelihood of a significant influx of stock to the market. This reduced the downside risks in this part of the housing market, but sellers who are realistic on pricing will continue to command the most interest and, ultimately, achieve the best prices.
< View our latest Q2 2023 updates here.
For more information, please contact your nearest regional office or arrange a market appraisal with one of our local experts.