Savills: ‘Prime price growth on pause due to General Election uncertainty’

Price growth has been put on hold at the top of the market during the second quarter of 2024 given uncertainty surrounding the General Election, according to the latest analysis from Savills.

Research by the agency brand found prices in prime central London (PCL) have fallen by 0.4% on the quarter and 0.9% on the year, representing an average fall of just £20,000 in value for a property worth £5m over the past three months.

Frances McDonald, director of research at Savills, said: “Despite the short odds on a change in government and continued market activity, the General Election has resulted in a degree of caution in the market, with some prime buyers opting to wait-and-see how the events of the next couple of weeks unfold before firming up plans.

“However, the shorter than expected run in to the General Election means there is more opportunity for buyer demand to gain traction over the autumn, once most of the uncertainty is behind us.”

McDonald said the impact of non-doms tax changes is likely to be most keenly felt in prime central London, where those affected are currently weighing up their options, adding: “But it’s important to remember that most prime central London buyers do not have a non-dom status. Demand from domestic and other international purchasers continues to be resilient, especially given the value on offer in a historical context, as well as growing stability in the mortgage market, with some lenders starting to lower rates in anticipation of a base rate cut.

“Furthermore, there is little evidence to suggest that we will see a flurry of stock coming onto the market, as many of those affected by non-doms changes are likely to retain their base in the capital. 

“However, it is likely this will act as a drag on demand and the pace of recovery, with an expectation that value will ebb and flow as proposals work their way into law.”

Beyond London, prices fell marginally on the quarter by 0.4%, taking annual falls in value down 2.7%. These are the markets which saw the strongest growth during the mini housing market boom of 2020 and 2021.

Savills suggests some buyers have put plans on hold as they await an interest rate cut announcement and, in some cases, clarity around future school fees due to Labour’s plans to add VAT to private school costs.

McDonald added: “Despite a shallower pool of demand, there have been enough committed buyers to keep the market moving.

“Labour’s plans to introduce VAT on private school fees could see more demand filtering into the state and grammar school systems which may, in turn, increase the house price premiums we already know are evident around high performing state schools.”

This is echoed by Knight Frank data that suggests average prices fell by 2.4% across PCL during the year to June for the second month in a row. Demand has been held in check by uncertainty over the timing of the first rate cut in more than four years and the possible implications of a new government, the agent said.

In prime outer London, prices fell 0.9% over the same period, Knight Frank said, reflecting how markets where a higher proportion of demand is driven by factors such as employment and education have performed better in the higher mortgage rate environment.