UK & London sales market update Q2 2023

For the latest UK & London sales market update (autumn 2023), click here.

March marked the seventh consecutive month that values dipped across the UK, taking the annual decline to 3.1%.

Average values have now fallen 4.6% since the peak of the market in August last year.

Our quarterly update examines the latest trends in the UK, London and prime London sales markets.

Key highlights:

• UK and London house prices declined in Q1, and will dip further into negative territory this year, although a brighter economic outlook may mean a faster recovery
• Even with house price declines forecast for the mainstream London market, the value gains registered during the pandemic are unlikely to be fully eroded
• Prime London housing values registered no growth in Q1 2023, but price declines will be more modest in this market

UK overview

Annual house prices fell by 3.1% on an annual basis at the end of March, according to the Nationwide Building Society, after sliding by 0.8% during the month.

House prices are continuing to re-balance after several very strong years of activity during the pandemic, which put upwards pressure on pricing especially in markets where supply was tight. There was also going to be a ‘return to normality’ as very high levels of growth started to unwind. But speeding this process up over the last year have been rising mortgage rates and the rising cost of living – both acting as brakes on the market.

The Bank of England recently announced another base rate rise to 4.25%, up from 0.25% at the start of last year. While many homeowners are on fixed-rate deals, and protected from any immediate change in their repayments, those coming to the end of their term are facing a jump in mortgage repayments, as are buyers entering the market for the first time.

Even so, agents are reporting that after the shocks to the economy at the end of last year, amid much political upheaval, the market has settled again into more normal rhythms. Zoopla reports that while buyer demand is down sharply compared to last year, it is 16% higher when compared to the more ‘normal’ pre-pandemic market in 2019.

Sales activity is continuing at levels that would signal around 1m sales this year, under the 1.2m sales registered in the years before the pandemic, but well above the levels registered in the wake of the global financial crisis. Agents say that sales are moving well particularly when there is realistic sales pricing.   

Home values are not moving in tandem across the country. As shown in the chart below, four regions are still registering price growth at the end of Q1, according to Nationwide’s quarterly index, which shows 1% growth at the end of Q1 across the UK. However, it is likely that all regions will start to register price falls during the course of the year to some extent.

We expect the average house prices across the UK to fall by 8% this year, as examined more fully in our recent forecasts. Even with this decline, values will return to 2021 levels, and the rise in house prices registered during the pandemic will not be fully unwound. Brighter economic news, as examined in more detail in our economic update may also signal faster than expected recovery for  prices as inflation falls back and interest rates recede.

London focus  

Average prices in London are now down 1.4% on the year, according to Nationwide quarterly data. As can be seen from the chart above, this is not the deepest decline in prices across the country, but it does come after London’s market trailed in terms of price growth during much of the pandemic.

Given the high capital values in the city, average prices are still £36,000 higher than pre-pandemic levels on average, according to Nationwide, even with the recent declines in pricing.

The reversal of pandemic-led trends over the last year means that demand for homes without outside space has become stronger, particularly demand for flats. This market registered the most modest price growth during the pandemic, and some buyers are seeing value here, especially as they tend to have lower capital values.

Analysis conducted by Zoopla for The Telegraph showed that activity in many regional markets across the UK is largely being driven by homes in the least expensive third of the market, while sales for homes priced in the mid-bracket and highest price brackets are down substantially year-on-year. London looks like the exception, with only a slight rise in the number of the least expensive homes trading on the year, and very modest annual declines for the mid-bracket and most expensive homes changing hands, signalling a steadier market than some areas of the country that are experiencing sharper levels of price declines.

Agents are recording rises in stock levels across the capital, according to the latest RICS market survey, which is further reducing any upward pressure on prices. However, this survey also shows that buyer demand is holding up better in London than many other regions, and likewise expectations for pricing are less negative than most other regions.

Prime London

Prime London prices edged up 0.1% in Q1, but this left them unchanged compared to a year earlier. Values are down 1.2% since September last year. Values for flats and houses in prime central London were unchanged in Q1, but have edged down 0.7% and 0.6% over the last six months.

As can be seen from the chart below, the prime London market went through a period of price adjustment after the introduction of several tax and stamp duty changes starting in 2015. The pandemic started just as the market was recovering, and the international nature of prime London meant that travel restrictions introduced during the pandemic had a material impact on overseas demand, preventing the sharp price rises experienced elsewhere.

As travel restrictions eased from 2021, prices started to rise, with the weaker pound an added benefit for overseas buyers who returned to the market.

The mini-budget also caused a stall in activity in the prime market late last year, but agents signal that the market has settled back to more normal trading conditions in Q1, with more negotiation around price. There is also more of a split emerging between markets where buyers are more mortgage-dependent, and where many purchasers are fully funded.

We are forecasting a fall of 4% in central prime London prices this year – as examined in more detail in our recent forecasts. This would serve to unwind most of the 4% rise in prices in the prime London market since the start of the pandemic.