Growth across prime regional markets remains muted as the buoyancy of the pandemic recedes and the October Budget looms on the horizon. But the August interest rate cut has stimulated growing demand among mortgaged buyers, which is likely to feed into a gradual recovery.
Nick Maud, Director, Residential Research
A widely anticipated Labour victory in July’s general election was followed by some dour mood music from both the prime minister and chancellor over the summer. This was an attempt to foreground the 30th October Budget, where an increased tax burden on high earners is expected to be announced. Prices fell by -0.5% in Q3 2024, comparable to the decrease of -0.4% observed in Q2, according to the Savills prime regional index. But, the average annual price movement of -1.7% was far healthier than the -5.1% observed at the same point last year, four quarters on from the Truss fiscal event.
This ongoing caution has caused price expectations between buyers and sellers to fall into sync. According to our survey, 84% of buyers expected price reductions in Q2, and this figure remained unchanged in Q3. In contrast, the percentage of vendors expecting price drops rose sharply from 53% to 81% over the same period.
Our northernmost prime regions of Midlands, the North of England and Scotland experienced quarterly growth of 0.3%, in contrast to other regions where slight falls ranged from -0.6% in London’s Suburbs and the capital’s Outer Commute zones to -0.1% in Wales. Scottish country houses, in particular, have seen comparatively strong price growth, rising by 1.5% quarterly and 0.8% annually. Lower average property prices in these regions potentially mitigate concerns around increased taxation, but they also classically lag the wider market in responding to external stimuli.
Elsewhere, prime coastal regions have seen markedly sharper decreases than more inland rural locations. Average prices have fallen by -1.8% quarter-on-quarter compared with -1.2% across the Cotswolds, and by -5.2% versus -2.4% on an annual basis. Second home ownership is prevalent in seaside markets, and the drop in average pricing could be attributed to concerns around potential increases to capital gains tax in the upcoming Budget.
Prices in coastal locations also benefitted enormously from the race for space in the aftermath of the pandemic, growing by 25.0% from Q1 2020 to the peak of Q3 2022, and have therefore had a higher base from which to fall, although demand for well-priced stock remains. This trend is also true of the broader prime regional market as average prices in rural locations fell -2.4% annually, compared with only -0.8% in cities.
According to TwentyCi data, net sales activity on a monthly basis has seen an overall improvement over Q2 and Q3 compared with 2023. Annual growth decreased from 29% in May to 13% in June ahead of the general election, before rising to 35% in July after the result was confirmed. However, these increases began to trend downwards over the summer and into early autumn, with 20% growth observed in September as Budget-related hesitance grew.
Vendors were even more cautious, with annual growth decreasing by -8% in June before rallying to 10% in July and remaining steady at 12% in August and 8% in September in anticipation of October’s fiscal event.
It follows that average prices have proven to be more sensitive in higher price brackets. Returning to our index, the £2m+ bracket saw an annual decrease of -2.1%, compared with -1.7% between £1 million and £2 million and -1.3% between £500,000 and £1 million. Once again, the subsidence of the post-Covid mini-housing boom has its part to play in this trend, alongside concerns around tax.
The upcoming Budget has overshadowed sentiment at the top end of the prime regional markets as concern grows around a potentially greater tax exposure. More broadly, the wider regional market has been impacted by the tempering of enhanced activity post-pandemic, experiencing slower growth as trends continue to normalise.
At this stage, it is difficult to make predictions on specific Budget announcements, but the time scales of any readjustments will be of equal importance to the housing market as the content. This will particularly apply to any reappraisal of capital gains as vendors consider their position, while meaningful changes to inheritance tax may lead to a rise in downsizing at certain price points. Although it would be foolish to rule anything out, a full overhaul of the council tax system in the new government’s first Budget, during their first parliament, seems less likely due to the scale of the task and complexity involved – similar plans were abandoned by the previous government late last year.
Ultimately, once certainty around the tax implications of the Budget have solidified, we expect sentiment to improve, particularly among mortgaged buyers who should continue to benefit from an improved lending environment. The harmonisation of pricing expectations between buyers and sellers is also expected to have a positive impact on market activity. Elsewhere, the upcoming removal of VAT exemption from private schools in January may spur further growth in locations with a competitive mix of high-performing state-funded and independent schools.
< View our latest Q3 2024 updates here.
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