Prime London house prices fell sharply in February as transactions dropped to one of their weakest levels in years although signs of improving demand suggest the market may be starting to stabilise.
Analysis from LonRes shows sales across prime London were down 31.2% compared with February last year and 14.7% below the pre-pandemic average, as buyers continued to hold back following uncertainty over tax changes and wider economic conditions.
Average achieved prices fell by 10% year-on-year – the biggest annual drop since the financial crisis – with prime central London seeing the steepest declines.
Values in the core market remain around 23% below their 2014–15 peak, while falls in outer prime areas have been more modest.
WIDESPREAD DISCOUNTING
Discounting remains widespread, with the average sale agreed at 10.8% below the original asking price. Nearly six in 10 homes sold in February had already been reduced before finding a buyer, underlining the lack of urgency among purchasers.
Supply remains elevated, with available stock up 10.3% on a year ago, although the number of new listings was slightly lower than last February. In the £5m+ market, transactions were down 54.8% year-on-year, while the number of homes for sale at this level rose by almost 10%, pushing discounts to an average of 13.6%.
POSITIVE OUTLOOK
Despite the weak headline figures, forward indicators are more positive. The number of homes under offer was up 8.1% on last year and well above the long-term average, while enquiries from buying agents – often a sign of serious demand – have picked up.
The lettings market is showing stronger momentum. Lets agreed rose 39.1% year-on-year and new rental instructions increased by 26.6%, although average rents slipped by 0.5% annually as supply grew.
LonRes says the data suggests the prime market is still adjusting after a difficult period, but rising activity levels could signal a gradual recovery through 2026.
BUDGET IMPACT
Nick Gregori (main picture, inset), Head of Research at LonRes, says: “February was a poor month for the prime London sales market, with a small increase in under offer numbers the only positive among a set of otherwise uniformly negative results.
“With transaction data based on time of exchange it is likely that we are now seeing the full effect of the disruption caused around the time of the Budget at the end of last year.
“The Budget looks to have caused low levels of activity and significantly reduced pricing for the deals that were agreed, particularly in higher-value prime central areas.”
“Out of the frying pan and into the fire.”
“It may be a case of ‘out of the frying pan and into the fire’, for as soon as the Budget’s impact on the market was absorbed we now have further economic uncertainty introduced by the conflict in Iran.
“This has already caused lenders to increase mortgage rates as inflation fears are priced into their borrowing costs, specifically the risk of an oil price spike. Given the relatively recent memory of significant energy price inflation in 2022 this is unlikely to improve sentiment in relation to the global economy.”
CAPITAL SAFE HAVEN
But he adds: “London’s status as a safe haven is typically boosted whenever there is conflict or political upheaval elsewhere in the world, but tax and policy changes have in general made it significantly less welcoming for international high net worth individuals.
“We know there are significant numbers of people living in the Middle East with links to London but at this stage it is too early to tell how many might return and therefore what the impact on the prime London property market could be.
“The prime London lettings market saw activity continue to recover in February, with large rises in new instructions and agreed lets, admittedly still off a relatively low baseline.
“The increased availability of homes to rent compared to the past couple of years has led to small rental falls for the last three months, but we will see over the remainder of the year what impact the removal of bidding over asking price – introduced on May 1st as part of the Renters’ Rights Act – has on rental values.”
