What’s next for the UK luxury home market?

16 February 2022

7 minute read

No one can be quite sure what normal will look like after the pandemic. This is especially true for the UK prime property market, with people still reassessing where they want to live now that office commuting is less frequent and likely to stay that way.

Whether it’s an idyllic picture-postcard coastal location, a spacious suburban family home, or the return of apartment living now that cities are springing back to life – it seems buyers are still trying to prioritise what they want.

“While there’s certainly been a much-publicised ‘race for space’ that’s made the regions more desirable, London – the epicentre of the economy – is reopening and the property market there is now very strong, including for both houses and flats. And as workers return to the office, prime central London is also regaining its appeal,” says Tom Bill, Head of UK Residential Research at Knight Frank.

“But you can definitely say there’s a sweet spot at the moment, with heightened demand for all property types.”

What’s also more certain is a lack of homes coming on to the market. There were 6% fewer properties up for sale in 2021, despite sales being 13% higher, according to property data analyst TwentyCi, with much of the available stock skewed towards inner and outer London1.

UK prime property price growth in 2021.

All roads inevitably lead back to London

But even in London, prime and super-prime house hunters face a competitive market. According to Savills, there were 522 transactions in the capital for £5 million-plus properties last year, compared to just 348 in 2020 and 310 in 2019 – the strongest year for London’s super-prime market since 20132.

“We’re starting to see a refocus back to London as city life returns,” says Lucian Cook, Head of UK Residential Research at Savills.

“People have begun to find it more difficult to trade up into the top-end coastal and prime regional markets because the surge in activity has depleted levels of stock available to buy. Some buyers are now realising they stand more of a chance of being able to meet their aspirations of trading up in London.”

Domestic buyers have led much of this revival in the capital. The strongest performing prime markets – some with double-digit price growth3 – have been for larger ‘country-style’ homes in London’s smart, green neighbourhoods of Richmond, Hampstead, East Sheen, Dulwich, Wandsworth, and Wimbledon.

“It’s a very competitive market in London right now,” says Jo Eccles, Managing Director of Eccord, a property advisory service for luxury residential property. “There’s little stock around and buyers need to be extremely decisive. Around 40% of the stock we’re buying for clients is also off market.”

And with international buyers slowly returning – flights to the UK are now at two-thirds of pre-pandemic levels3 – the clamour for the capital’s most luxurious homes will no doubt intensify back on to the traditional golden postcodes of Belgravia, Knightsbridge and Kensington – and the turnkey properties in these central locations that the super-wealthy foreigners so often crave.

“Clearly, it’s been much more of a house market than a flat market in London during the pandemic – with people favouring space to live in and to be near green spaces,” says Cook.

“But the re-emergence of prime central London, and the market for apartments, could be the property story of 2022 once this wave of pent-up demand from overseas buyers is unleashed and international travel becomes easier.”

Bill at Knight Frank adds: “All the reasons why international buyers were attracted to London before the pandemic haven’t gone away. And the pound is also still looking relatively good value for a lot of buyers – compared to before the European referendum in 2016, you’re still getting discounts of around 20% on currency and property price movements combined.”

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‘Race for space’ fuels 2021 growth, but 2022 expected to be more muted

The pandemic has certainly stimulated the UK housing market; data from the Land Registry shows house prices are up 10% year-on-year4, with prices rising at their fastest pace in more than a decade5. All this despite dire warnings from the Bank of England back in May 2020 that property prices could fall 16%6.

“The 2021 data overwhelming shows a busy transactional market, the supply of available and appropriate property in the market remaining a key challenge for domestic and overseas buyers alike,” says Stephen Moroukian, Product and Proposition Director at Barclays Private Bank.

Of the standout performers in 2021, the £2m-plus Cotswolds country house market saw annual price growth of 23.4%, according to Savills7. Surrey’s exclusive gated estate of St George’s Hill (21.8%) also rose by more than a fifth. While prime coastal markets, including Devon and Cornwall, recorded annual growth of 15.6% in 2021.

“The prime country and coastal markets may see prices hold up better for longer due to the scarcity of these type of properties,” says Bill at Knight Frank.

And despite more muted price growth of 3.2% for prime London properties through 2021, Savills is nevertheless forecasting above-average price increases this year in prime London of 6%8 and 8% in prime central London9 on returning overseas buyers and a recharged new build market. Prices are also rising for flats with people returning to the city looking for a pied-à-terre as a base3.

New builds, such as the sumptuous 1 Grosvenor Square development in the heart of Mayfair with its 24-hour concierge and full lifestyle and wellness services, are leading this spike in interest in the prime central London market, with apartments there starting from £8.65m10

“It’s a really interesting product,” says Eccles at Eccord. “People now want all these extras in flats, much like the services they receive when they stay in a 5-star hotel.”

In contrast, average house price growth across the rest of the country is expected to slow in 202211 with renewed COVID-19 uncertainty, an end to the stamp duty holiday and growing concerns over inflation.

‘Virtual sales’ keep new build property market afloat

Through COVID-19, estate agents also reported increased sales for both new build and second-hand homes without the need of a physical visit. This use of virtual viewings has proved a real benefit for upscale listings.

“These ‘virtual sales’ have kept London’s prime new build flat market going through the pandemic,” says Eccles.

“The improved technology makes it far easier for buyers to get a clear idea of the property, and people are happy to trust the technology now. The videos are also beautifully done, and some of the developers have even created virtual-reality experiences. We’ve found virtual viewings to be very popular with both UK and international buyers.”

Changing buyer attitudes

While Omicron may have paused the return to economic normality, two years into the pandemic and there’s certainly been a re-evaluation of the work-life balance and a greater acceptance of hybrid working.

In our previous article on the UK property market, we touched on how the commute was becoming a bigger factor in people’s property thinking. And today, as we further assess where we will be working during the week, many are now considering a move closer to the city rather than into the commuter belt and beyond. It goes somewhat against early-pandemic thinking of an urban exodus for a new life in the country.

“London has proved to be really resilient in all of this,” says Eccles.

Attitudes to location within cities may be changing, too; people may no longer want to live quite as close to the Tube station as they once did. Instead, they want lifestyle options on their doorsteps, such as cafes, shops, parks and restaurants.

“This race for space has a shelf life – and the pandemic will soon start to fade from people’s memories,” says Bill at Knight Frank.

“And for those that bought outside London early in the pandemic, the reality of the commute – especially if it’s more than they anticipated – is spurring people to either return altogether, or rent or buy boltholes in the capital to make their lives easier.”

There are signs then of a restoration of the natural order.

To find out more about how Barclays Private Bank can help you with your property needs, please contact your Private Banker or request a call back.

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