The UK’s prime residential market has seen a remarkable recovery in activity levels since the surprise reopening of the housing market in England on May 13, but remains price sensitive given an uncertain economic backdrop, according to global real estate adviser, Savills.
Having fallen by 72% in April, in the week ending 21st June the number of agreed sales in the market above £1million were 48% higher than the weekly average for June 2019, according to latest data from TwentyCi.
“Market activity has been buoyed by pent up demand, in part at least, but we have been surprised at the extent to which lockdown has made people reassess their housing needs and, more pertinently, act upon it,” says Lucian Cook, Savills head of residential research.
“This said, buyers appear to be keeping their feet on the ground when it comes to what they will pay, meaning sellers must retain realistic price expectations if this momentum is to be sustained.”
Average values slipped by -1.1% in the prime residential markets of London in the second quarter of the year, though on average they remained unchanged across other prime UK markets, where values have been supported by an increase in demand for country living.
“The experience of working from home has made people aware of the limitations of their existing homes, and increased inside and outside space has become an all-important driver of demand.
Not only has this changed the balance of demand between town and country properties, it has also underpinned the value of prime houses such as those along the established wealth corridor of south west London, particularly where they offer decent garden space.”
The London story:
Across the prime London market, 97% of Savills agents report increased demand for homes with a garden or outdoor space, 82% increased demand for a separate place to work from home, and 71% proximity to a local park.
As a result, houses outperformed flats in the second quarter, reversing a trend seen since 2014. This desire for space has also caused existing owners in central London to look to outer London locations, particularly across the prime west and southwest markets.
The average outer prime London house value slipped by -0.5%, while the average flat was down -1.6%.
In central London, where restriction on international travel has constrained demand from overseas buyers, prices fell by 1.2% in the quarter to leave them a full -20.7% below their mid-2014 peak.
“In every previous market downturn, values in prime central London have bounced back fastest,” states Cook. “But, despite looking good value, it will require the easing of travel restrictions and the reopening of work, leisure and educational facilities before we see that this time around. In the meantime it creates a buying opportunity for domestic buyers”.
|
|
Quarterly growth, Q2 2020 |
Growth since 2014 peak |
|
Prime central London |
-1.2% |
-20.7% |
|
Outer prime London - flats |
-1.6% |
-6.4% |
|
Outer prime London - houses |
-0.5% |
- 7.0% |
Source: Savills prime London index Q2 2020
Beyond London:
Eight out of ten (83%) Savills agents reported increased demand for village homes, and 90% greater demand for country locations. All offices reported an uptick in buyers from London – with 32% of new applicants in the country coming from London compared to 21% last year.
“The increase in demand for village and rural properties comes at a time when they look pretty good value, their price growth having lagged behind their urban counterparts over the past decade,” says Frances Clacy, Savills residential research analyst.
“We expect this price gap to begin to close over the coming quarters, as buyers rediscover the virtues of country living. The value on offer is most noticeable in the country house market above £2million where values rose slightly in the quarter. In this particular submarket, prices are still on average 21.4% below where they were in 2007, prior to the credit crunch.”
|
|
Quarterly growth, Q2 2020 |
Growth since 2007 peak |
|
Prime urban locations |
-0.1% |
+10.6% |
|
Prime village and rural |
+0.1% |
-7.0% |
|
£2m+ country house market |
+0.3% |
-21.4% |
Source: Savills prime regional index Q2 2020
Looking forward:
“Overall, this is a surprisingly strong performance for a prime residential market that has spent much of the quarter in lockdown. Lead demand indicators suggest activity of the next few months will remain relatively buoyant. Last week our new buyer registrations and viewings were respectively 32% and 25% higher than the average in the 10 weeks pre-lockdown.
“In this period the biggest immediate challenge will be aligning buyer and seller expectations on pricing, particularly in locations where activity has picked up the most,” Cook says. “Right-pricing is key to sustaining current momentum, particularly given the prevailing economic uncertainty which may slow the market in the latter part of the year before a more sustained pick up as Coronavirus and Brexit concerns ease.”