Higher debt costs have had a more significant impact across outer prime London, when compared to equity-driven central London. 

But so far values have held up better than expected. In part this is due to a return to London post-pandemic, that continued into 2023, and because prime buyers have been better able to withstand higher interest rates than those across the mainstream markets. 

Overall, values across outer prime London are likely to continue falling in 2024, initially at a similar pace to this year, whilst interest rates remain high. The UK general election (which is due to take place before the end of January 2025) could also add a degree of uncertainty to the prime markets, though the impact is likely to be more muted than in central London. 

Next year is expected to be a year of two halves as inflation continues its downward trend and interest rates also gradually come down from mid-2024 onwards. We are forecasting total falls of -2.0% by the end of the year. 

In every prime London region, fewer Savills buyers are now using a mortgage than during the pandemic. This suggests they have been able to tap into savings or existing housing wealth to help fund their purchase and reduce monthly mortgage costs. An average of 49% of buyers across outer prime London used a mortgage in the first eight months of this year, lower than the 59% in the three years from 2020 to 2022. 

However, there remains an imbalance between property types with those more reliant on demand from mortgaged buyers, including flats which tend to be bought by first-time buyers and investors, seeing more significant price falls. Over the past year, flats in outer prime London fell in value by an average of -3.4%, compared to a more modest fall of -1.4% for houses. This means that in total since the beginning of the pandemic, flats are -2.4% lower in price whilst houses are 11.1% higher. 

This trend is likely to continue in the short term as these buyers remain the most affected by affordability pressures. 

Overall by the end of 2024 values are forecast to be down by a total of -5.4% since the mini-budget in September 2022. In the medium term, rates are expected to stay higher for longer and so there is likely to be a slightly slower recovery than previously expected. Growth is forecast to peak at 6.0% in 2027, once we see a more meaningful improvement in the UK and global economies and affordability pressures have eased. 

Total growth of 17.4% is anticipated for the five year period to the end of 2028. At the end of this period we expect that prime London will start to outperform the lower value markets of the Midlands and North of England, Scotland and Wales as we reach the end of the current housing market cycle.

The prime regional markets of the UK witnessed the strongest levels of house price growth throughout the pandemic as the well-documented ‘race for space’ led to significant levels of demand chasing constrained supply of the right homes. 

As interest rates have risen, buyers have had to adjust their budgets accordingly, particularly in markets most reliant on debt.  

This means we expect values to continue falling in 2024, while interest rates remain high, but at a slower pace than this year, at an average of -1.5%. Recovery is likely to begin in the second half of next year, once interest rates come down more significantly. We anticipate a turning point in the prime markets to be earlier than in the mainstream markets as buyers are less reliant on mortgages. 

Overall by the end of next year, this would leave values down by a total of -8.1% since September 2022 but that will range from -11.1% in London’s suburbs to -3.3% in prime Scotland. The trends we have witnessed so far in 2023 are likely to continue into 2024, as debt-dependence drives the scale of price falls. 

Across London’s suburbs and commuter zone, around half of prime buyers used a mortgage to fund their house purchase in the first eight months of 2023. And as a result these areas have seen the most significant price falls, of between -6.5% and -7.1%, since last year’s mini-budget. 

Across the rest of South England, whilst there tends to be fewer debt-reliant buyers (around 30% in the prime markets) there are more second home purchasers and given this discretionary nature, values have fallen by -4.9% in the past year. 

In the lower value markets of the Midlands and North of England, Scotland and Wales where affordability is less of an issue and around 40% of prime buyers use a mortgage, prices have fallen less, by between -1.1% and -3.4%. 

As in the mainstream housing markets, towards the end of the five year period, we expect price growth across all prime regions will begin to converge as we reach the end of the current housing market cycle. That means London and its hinterland will begin to outperform the likes of the North of England and Scotland. 

On average, growth is expected to total 18.6% in the five years to 2028, ranging from 16.2% in London’s suburban markets to 21.5% in the Midlands and North of England.