Savills: Price sensitivity is changing buyer expectations

Price sensitivity and a flight to quality is dominating prime London markets, research suggest.

Analysis of second quarter property market activity by Savills suggests a growing divergence between cash and equity rich buyers and those needing mortgages, which is feeding into price differences at the top and lower-value end of the prime sector.

Its research found average prices across London’s prime markets fell -0.2% on the quarter, and -1% annually, leaving values 3.9% above their pre pandemic level. 
Cash buyers who are not exposed to concerns around rising interest rates dominated demand in the second quarter, Savills said.

Year to date, cash buyers have accounted for 71% of prime central London deals and 35% in outer prime London, according to Savills records. 

This has resulted in a growing divergence between lower value homes in prime locations, which are typically more exposed to debt, and the more resilient top end, Savills said.

On an annual basis, prices for the £5m-plus market across prime London were down 0.1%, while the £500,000-£1m market has seen 2.1% falls and the under £500,000 bracket has fallen further at 2.5%.

Savills' index reveals that best in class properties are holding up best in more fragile market conditions. Properties considered in immaculate condition across prime central London command an average price of more than £2,000/ sq ft, 37% higher than those considered to be in a poor condition, compared with a premium of 25% around 10 years ago.

Frances McDonald, director of residential research at Savills, said: “The established prime markets most synonymous with equity rich buyers are holding up the strongest amid mortgage market turbulence.

“While London’s prime market continues to perform more strongly than expected, the most recent interest rate rises are likely to squeeze buyer budgets and increase price sensitivity, particularly in the more domestic outer prime locations where more buyers are dependent on borrowing.  Sellers will need to price pragmatically to align with prevailing buyer expectations.”