‘Price sensitivity’ continues to hit prime markets

September has been ‘underwhelming’ for sales in prime London except for at the high-end £5m price point, figures suggest.

Separate analysis from both LonRes and Savills suggests a slump in the capital and that buyers are more price sensitive at the lower ends of the market.

There were 2% fewer new sales instructions in September compared to the same month last year but 11.5% more than the pre-pandemic September average, according to LonRes.

Transaction levels and values do appear to be coming under pressure from a lack of buyer demand, with 24.3% fewer sales than a year earlier and a 3.1% annual fall in achieved prices - the largest decrease since May 2021.   

There was also a decline in the number of properties going under offer in September.  The annual fall was 27.4%, with the 2.3% reduction compared to the 2017-19 average.

This made September the first month this year to register a fall on this basis.  This indicates a weak pipeline of sales and could impact on the outlook for the last three months of the year, LonRes warns.

The data company also highlighted that looking back over the past decade, this September’s results are reasonably typical   Ranking September 2023 would put it sixth out of 10 for the number of new instructions and seventh for the number of sales.  

It said 2021 and 2022 were strong and took the top two positions for sales, making this year seem like a worse performance than it really is.  

As well as high mortgage rates dampening demand, LonRes suggests another consideration is simply that less people want or need to be in London for work after the disruption to employment patterns following the pandemic

A lack of international buyers has also been suggested by agents as a reason for lower activity in the sales market.  

Transactions during the third quarter were down across all price points on an annual basis, with homes in the £2m to £5m band seeing the largest fall of 36.8%.  The market for properties priced at £5m or more has been the strongest segment since late 2021, but even here activity has declined on an annual basis, LonRes said.

However, the comparison to pre-pandemic levels shows that the top end of the market has been the strongest performer – there were 66.7% more sales in the third quarter of 2023 than the average of the same quarter from 2017 to 2019.  

Other metrics for the £5m plus market do suggest that supply continues to grow, with new instructions up 12.5% for the year to date and 20% more properties for sale at the end of September than a year ago.  This could test the depth of demand going forward. 

Commenting on the findings, Nick Gregori, head of research at LonRes, said: “After a quiet summer we heard positive signs from some agents at the start of September.  They reported interest from potential buyers picking up, in the form of increased numbers of enquiries and viewings.  

“Our data isn’t yet registering that this has translated into agreed sales, which remain a little low for the time of year compared to the stronger markets of the past two years. But relative to pre-2020 trends, the start of the autumn selling season has essentially been a typical one.  However, there is a risk that negative economic news in the UK and the escalating conflict in Israel and the Palestinian territories could further weaken buyer sentiment.”

This data was backed up by whole market analysis by Savills, which revealed there were 145 sales worth in excess of £5m during the third quarter of 2023.
This is up from 137 during the second quarter and 108 from the first three months of the year.

In total, 390 properties worth in excess of £5m have so far changed hands in 2023, lower than the 459 in first nine months of 2022 – a record year – but still 7% above 2021 levels and 67% above the pre-pandemic average of 233.

Frances McDonald, director of residential research at Savills, said: “Prime markets generally have remained comparatively robust this year, but the latest data for the very top end of the London market underscores the remarkable resilience of the city’s prime central locations. We’re seeing a particular focus on turnkey flats and a slight shift away from larger houses with outside space which topped buyers’ wish lists during the pandemic. 

“But, despite London's resilience, price sensitivity is likely to continue into 2024, particularly as we approach the next general election. There are clear headwinds but we continue to expect prime central London to outperform all other UK residential markets, not least because of its standing in an international context and that global wealth generation is expected to continue growing."