Market uncertainty and economic fluctuations has led to a price-sensitive market. Committed sellers will need to price sensibly to generate the most interest
Katrina Fyfe, Analyst, Residential Research
Economic pressures continue to impact the UK housing market. Despite the prime markets generally having less reliance on debt, they also remain price-sensitive, and values continued falling over the three months to September.
Average prime regional values fell by -1.5% in the third quarter of 2023, leaving them -5.2% lower than a year ago. Despite this, values remain 10.5% higher than at the start of the pandemic.
On the whole, buyers have continued to be cautious as a result of economic challenges and market instability. Increasing interest rates, the prospect of house price falls, and market uncertainty remain the most significant issues affecting buyers, according to Savills regional agents. As a result, sellers are being encouraged to be realistic on pricing to retain buyer interest.
Markets furthest from London are holding up the strongest as affordability tends to be less stretched. Meanwhile, the prime commuter belt and suburban markets have come under the most pressure.
This leaves prices in the Midlands and North of England, Scotland and Wales between -1.1% and -4.9% lower than they were a year ago. Across prime Scotland, in particular, values remained broadly flat during the last three months, partly due to a continued lack of stock for the right homes. But across London’s suburbs and commuter belt prices have fallen by a more significant -6.5% to -7.1%.
These higher-value, more mortgage-dependent markets closest to London became increasingly popular with families, those looking for more space and those wanting great commuting routes into the capital throughout the pandemic years. But more recently, buyer budgets have been affected by higher debt costs.
Across the market as a whole, lower-value prime properties have been the most resilient. Properties valued between £500,000 and £1,000,000 saw values fall by -4.9% over the past year, whereas those above £2,000,000 fell by -5.9%.
This suggests that the prime markets, though driven by cash and equity, are not completely immune to the rising cost of borrowing.
A clear trend that has emerged so far this year has been greater use of cash because of the increased cost of mortgages. In the eight months to August, 53% of Savills regional buyers used cash to purchase their property. This is up from 47% between 2020 and 2022, with some cash buyers looking to take advantage of a less competitive market.
The country house market saw prime values fall by -1.7% in the third quarter and by -5.7% in the year to September 2023. But there has been some regional variation with the relative value on offer in Scotland, leaving values 0.7% higher than they were three months ago, compared to a fall of -3.8% in the South West of England.
Overall, this market remains highly discretionary, with many buyers prepared to wait for the best price. As a result, demand has slowed, especially in markets that attracted a lot of buyers from London during the pandemic. For example, coastal country houses, which tend to be popular second-home markets, saw values fall by a more significant -6.4% during the past year.
That said, many best-in-class properties are bucking the trend and, whilst they remain price sensitive, are still seeing competitive interest.
Continued market uncertainty and fluctuations in the economy have led to price sensitivity in the prime housing markets of the UK. This is particularly true in the markets closest to London, where there is a greater reliance on mortgage debt.
Looking ahead, even though cash buyers have helped to support activity, buyers’ budgets are likely to remain constrained. The Bank of England’s decision to hold Bank base rate at 5.25% in September has reduced the likelihood of further rate rises. This has brought some stability to the mortgage markets, but buyers will continue to be cautious and prices will likely continue falling until we see a more significant decline in the cost of mortgage debt.
As such, committed sellers need to be realistic to current market conditions and those who price sensibly will likely create the most interest.
< View our latest Q3 2023 updates here.
For more information, please contact your nearest regional office or arrange a market appraisal with one of our local experts.