Prime central London to outperform rest of UK housing market
The prime central London residential market is expected to experience the strongest house price growth across all UK markets over the next five years, as the return of affluent domestic and international buyers to the city gathers momentum.
Savills expects +8% price growth in 2022, and +23.9% growth in the five-years to 2026.
“After seven years of falling values, totalling -20%, property in the capital’s most prestigious postcodes is overdue a recovery,” says Frances Clacy, research analyst at Savills. “We’ve already seen the beginnings of this, primarily driven by demand for larger houses and, as such, by locations such as Notting Hill and Holland Park.
“But, renewed demand for flats during the second half of 2021, particularly from those looking for a pied-à-terre, suggests growth is likely to become more balanced, both in terms of location and property type, going forward.”
In October, Savills registered the highest number of new buyers for any month since January 2020, the start of the short-lived Boris bounce, closing the month with a 60% uptick in demand compared to the overall monthly average in 2019 and 2018.
London’s super-prime residential market recorded more £5m-plus sales than any October since 2014 and £10m-plus sales outperformed every month since July 2013. The total value of £5m-plus sales exceeded £589m, which is 80% higher than September and 29% higher than October 2020. “A rising number of high value sales in Belgravia and Mayfair can account for this significant uplift, demonstrating the enduring appeal of these world famous addresses,” says Clacy.
Overall, there have been 398 £5m-plus sales across London in the year to October, with a combined value of more than £4.1bn. This is the highest annual total since 2014 both in volume and value terms.
The forecasts predict growth of +23.9% in the five years to 2026, which would see prime central London values return to their previous 2014 peak level for the first time.
Table 1: Prime London forecasts
| 2022 forecast | 2023 forecast | 2024 forecast | 2025 forecast | 2026 forecast | 5-years to 2026 | |
| PCL | 8.0% | 4.0% | 2.0% | 4.0% | 4.0% | 23.9% |
| Outer prime London | 4.0% | 3.0% | 2.0% | 2.0% | 2.0% | 13.7% |
| All prime London | 6.0% | 3.5% | 2.0% | 3.0% | 3.0% | 18.7% |
Source: Savills Research
Note: These forecasts apply to average prices in the second-hand market. New build values may not move at the same rate
Central London’s recovery could be tempered slightly in 2024 due to inevitable uncertainty surrounding the next planned UK general election. Its recovery is also likely to be less dramatic than historically because of the underlying tax environment and the capital’s maturity as a world city.
Outer London flats to bounce back
After an exceptionally strong year for outer prime London locations, which encompasses the affluent domestic markets such as Chiswick, Putney, Wandsworth and Richmond upon Thames, the market is expected to continue to benefit from a flow of wealth from more central locations to outperform the mainstream (+4% in 2022, and +13.7% by 2026).
Savills latest buyer survey reveals that there still remains demand from those looking to upsize. This demand, together with a lack of suitable family housing stock, will continue to support prices. However, looking further ahead, the likelihood of rising interest rates will put some pressure on buyers’ spending power.
Demand is also returning to the flats market as Frances Clacy notes: “Strong price growth over 2021 had been concentrated in the leafier suburbs where large houses have performed more in line with the country house markets, properties with six or more bedrooms in outer prime London recorded growth of 7.8% in the year to September.
But since social distancing measures have been relaxed, more demand from wealthy first-time buyers and young professionals has also returned. This has led to a pick up in the rate of price growth for smaller houses and flats, particularly those in areas with good transport links, or offering walk-to-work potential, to London’s business districts.”
Flexible working widens prime regional buyer search areas
“The prime regional markets of the UK have continued to see strong levels of price growth during 2021 as the Covid-19 pandemic caused many affluent buyers to reassess where they wanted to live and what they wanted from their homes,” says Frances Clacy.
Average values across the UK’s prime regional markets grew by +8.8% in the year to the end of Q3 2021, with coastal (+14.8%) and rural (+9.6%) hotspots outperforming the rest of the country on an annual basis.
Savills expects the urgency in the search for space and lifestyle change to ease slightly, but longer-term changes to people’s working patterns will underpin demand from those who can take advantage of greater flexibility and widen their previous search areas to more suburban and rural markets further away from major employment centres.
Although rising interest rates will impact the equity rich prime markets less than the wider mainstream markets, this together with the possibility of increased taxes will gradually squeeze the spending power of wealthier households so we do expect rates of house price growth to soften, particularly given the strong price growth we have seen throughout this year and last.
Growth at 4% is expected in 2022, and +19.3% over the next five-years. The existing price differential between the prime markets in the South of England and those in Scotland, the Midlands and the North of England has left more capacity for price growth in the latter, according to Savills. As such, the business expects these to be the top-performing prime regions over the five years to 2026.
Table 2: Prime regional market forecasts
| 2022 forecast | 2023 forecast | 2024 forecast | 2025 forecast | 2026 forecast | 5-years to 2026 | ||
| Suburbs* | 3.5% | 3.0% | 2.0% | 3.0% | 3.0% | 15.4% | |
| Inner Commute** | 3.5% | 3.0% | 2.5% | 3.0% | 3.0% | 15.9% | |
| Outer Commute† | 3.5% | 3.0% | 2.5% | 3.5% | 3.5% | 17.1% | |
| Wider South | 4.0% | 4.0% | 3.0% | 3.5% | 3.5% | 19.3% | |
| Midlands/ North | 4.0% | 4.0% | 3.5% | 4.0% | 5.0% | 22.2% | |
| Scotland | 4.0% | 4.0% | 3.5% | 4.5% | 5.0% | 22.8% | |
| All prime regional | 4.0% | 3.5% | 3.0% | 3.5% | 4.0% | 19.3% | |
Source: Savills Research
Note: These forecasts apply to average prices in the second-hand market. New build values may not move at the same rate.*Within the M25 **Within a 30-minute commute †Within a one-hour commute