Cautious optimism returns to UK property market

15 February 2024

Please note: The external views expressed in this article are not the views of Barclays Private Bank, and forecasts are not a reliable indicator of future performance. Professional advice should always be sought when selling or buying property.

Remember those ominous soundings just a few months back? Forebodings of multi-year losses echoed from respected analysts1, leaving the UK property market cloaked in pessimism.

But the tide is slowly turning, revealing a new picture of cautious optimism. A looming drop in interest rates, once a distant possibility, has now emerged as a beacon of hope, potentially unlocking renewed activity.

However, brace yourself for a slower pace. Gone are the days of breakneck price surges; the market is adopting a more measured stride. Dizzying increases may be a thing of the past, replaced by a balanced – and even potentially more resilient – landscape. And while challenges still persist, the shift in sentiment is undeniable.

“The market is finding its new rhythm,” says Stephen Moroukian, Head of Product and Proposition for Real Estate Financing at Barclays Private Bank. “While a touch of guarded confidence is emerging, finding common ground between buyers and sellers will be crucial as they adapt to this evolving landscape.”

Primed for lift-off?

There’s also some rare good news for the prime central London market. Seemingly stuck in a rut since 20152, the capital’s “golden postcodes” are ripe for appreciation – think Knightsbridge, Mayfair, Chelsea and Hampstead, all known for their grand residences, luxury amenities and enduring prestige. Knight Frank’s five-year outlook for these established ultra-prime neighbourhoods has jumped from 8%1 to 18%2 in a matter of months.

“If you look at the prime London market, we’re basically at the low ebb – prices are down around 17% since the 2015 peak2,” says Stuart Bailey, Head of Prime Central London Sales at Knight Frank.

“But with all the economic data that’s now coming in and mortgage interest rates coming down, a shift is brewing, and we anticipate prices to increase. They won’t skyrocket, though – they’re likely to rise gradually, mirroring their slow decline.

“Buyers should consider acting. The opportunity to make informed decisions without undue pressure might not last long. Enquiry levels are already rising, while new listings are dwindling – suggesting a potential shift from a buyer’s market to a seller’s market within the next year.”

Why cash is king

Despite a national cooldown in house prices (down 2.1% in the last 12 months, according to the latest Office for National Statistics data3), cash buyers are driving growth in certain pockets. This comes after a post-pandemic boom where some areas, particularly rural regions, saw price surges of 20% or more3.

“Cash buyers are dominating the market, making up over 40% of all transactions4 – and that figure is higher for prime locations, especially central London,” says Frances McDonald, Director of Residential Research at Savills.

“Usually, cash buyers make up around a third of all transactions4. And, obviously, it’s a good time to be a cash buyer in a flat market, but things will likely rebalance as mortgage rates start to decline.”

Bailey at Knight Frank concurs: “Cash buyers are getting some good deals and they’re certainly playing a big part in the prime central London market, but many would prefer to use debt. I suspect they'll convert to mortgages when the debt market favours them again.”

Quality reigns supreme

The popular pandemic exodus to idyllic countryside locations, fuelled by remote working opportunities and COVID anxieties, also appears to be fading. Workers are returning to London, shifting the narrative back towards city living. Interestingly as well, "best-in-class" properties have remained resilient throughout these market fluctuations, demonstrating their enduring appeal.

“Your top-tier properties continue to fetch record prices,” adds Bailey. “A 10 out of 10 property is always going to get a 10/10 premium price, but it’s your 7/10 properties, they’re not achieving the 7s and the 8s anymore: instead, they’re settling for 5s or 6s. The market is certainly rewarding excellence.”

Size matters in London

Another factor in play in prime central London markets is the new planning restrictions brought in by Westminster City Council and the Royal Borough of Kensington and Chelsea (and more recently Camden Council, too) imposing size restrictions on new developments. Westminster is enforcing a strict 200 square metre limit on newbuilds, while Kensington and Chelsea has less defined regulations, but is focused on restricting the number of “over-size units” 5.

This shift is significant due to the prevalence of larger dwellings in luxury sales. Savills research reveals that almost two-thirds of all £5 million+ newbuilds sold in London since 2021 exceeded this 200 square metre threshold5.

“Basically, it’s putting a size limit on new homes that can be built,” says McDonald at Savills. “And it’s impacting not just developers, who can’t build those big ‘lateral’ flats anymore, but it’s also pushing demand towards existing properties. With fewer large units available, we could see prices rise in the secondhand market for these more-sought-after homes.”

‘Exciting opportunities’

To sum up, a cautious optimism is creeping back into the UK property market. Easing mortgage rates and a city living resurgence are all fuelling this sentiment, as well as the return of international investors seeking perceived havens in stable and familiar markets.

“Last year, many of our clients held back, waiting for market stability – but now, they’re actively planning purchases with a firm commitment to action, as well as international interest returning,” says Jo Eccles, Founder and Managing Director of Eccord, a London-focused buying agent.

“A disconnect had existed between buyer expectations and seller demands, limiting deal flow. But that price gap has narrowed, which is creating some exciting opportunities.”

Ongoing geopolitical tensions and a looming UK general election add further complexity to property choices. Still, there’s one thing analysts largely agree upon: in contrast to the last general election in 2019, we're unlikely to see large-scale policy shifts, regardless of the result.

“We all need to navigate this evolving landscape with prudence, but electoral anxieties or global events needn’t paralyse your property decisions entirely,” adds Moroukian. 

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