Price falls have started to ease across the prime regional markets as confidence returns and conditions stabilise. This suggests the market is now past ‘peak pain’, particularly as mortgage rates continue improving.
Katrina Fyfe, Analyst, Residential Research
After a year of uncertainty, buyer and seller confidence started to return in the final quarter of 2023. As inflation has slowed and mortgage rates improved, the levels of price falls across the prime regional markets started easing.
During the fourth quarter, prime regional values fell by -0.8%, an improvement on the -1.5% recorded in Q3 and the -1.4% in Q4 2022. This leaves prime values -4.8% lower than they were a year ago, suggesting the market is past ‘peak pain’.
More mortgage-dependent markets such as the suburbs and inner commuter areas had the biggest easing in price falls over the last three months of the year. Values fell by -0.5% and -0.6%, respectively, following significant falls in the third quarter. The markets in Scotland, however, saw their greatest price fall in Q4 following a more resilient performance during the past year.
But sensitivity still remains with the majority of Savills agents (76%) expecting stock levels to increase over the next three months. Therefore, aligning buyer and seller expectations on pricing is still crucial to maintaining activity across the prime markets.
Recently, there has been a shift in buyer priorities as many are now looking for better connectivity and proximity to amenities. As a result, urban, built up areas have performed more strongly over the course of 2023.
Key regional cities, including, Bath, Bristol, Cambridge, Glasgow, Oxford and York, outperformed their surrounding village and rural areas during 2023. City properties in Cambridge, for example, fell by -1.3% during 2023 whilst those in surrounding areas fell by a more significant -5.1%.
These city areas, typically made up of smaller, lower value properties, continued to see strong competition from more needs-based buyers and lower levels of supply. Comparatively, homes in nearby village and rural locations, which have a greater proportion of upsizers who tend to be more debt-dependent, saw more price reductions to attract demand.
More generally, there has been an uptick in the number of price reductions across the prime regional markets. A quarter of agents reported that more than half of their properties involved a price reduction in Q4. This is up from only 9% in the previous quarter. This has led to the beginnings of a realignment in buyer and seller expectations.
Over the fourth quarter of 2023, higher value homes have held up slightly better as buyers’ budgets have become less stretched. This easing in price falls has been supported by the improvement in inflation and interest rate levels coupled with the growing use of cash. Throughout 2023 60% of Savills buyers are using cash to fund their purchase.
However, over the year as a whole lower value properties are still holding up better. This market is driven by more needs-based buyers whilst the top end of the market tends to be more discretionary. Across all prime regional markets, properties worth less than £1 million saw falls of -4.0% over the course of 2023, whereas those valued above £1 million saw more significant falls of -5.2%.
In the final quarter of 2023, activity across the UK recovered back to the 2017-19 average. The number of agreed sales (net of fall throughs) in November and December increased to within -3% of the pre-pandemic level, according to TwentyCi.
This activity continues to be supported by an increasing number of price adjustments. There were 30% more price changes made during the fourth quarter compared to the 2017-19 average. Meanwhile, over the year as a whole there were only 23% more.
Across the prime regional markets, we expect price falls to ease further as buyer confidence increases and mortgage markets continue to improve. We expect price falls to total just -1.5% over the course of 2024.
The trends seen in 2023 are likely to continue in 2024 with buyers source of funding dictating market performance. That means prime markets closest to London, in particular the suburbs and commuter zones, where the proportion of mortgaged buyers is higher, will see slightly greater falls in 2024.
Overall, price growth is expected to return across all regional markets in 2025 once economic conditions stabilise. The market will slowly recover over the medium term with price growth expected to be about 19% in the five years to 2028. Prime markets in the North of England, Scotland and Wales are forecast to be the strongest performing over this period.
Prime regional forecasts
< View our latest Q4 2023 updates here.
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