2023: What's in store for the prime property market?

New Year, new possibilities. 2023 feels like a year of transition as we adjust to a new normal, living with higher costs and interest rates than recent years. We forecast that London and prime UK locations will still be seen as great places to put down roots, build businesses and make investments.

Over the last few years, property prices have soared, particularly on family homes where the ‘race for space’ for both living and working at home has become a priority. In turn, we have faced a shortage of available property across England, in both the sales and lettings markets, which has failed to satisfy the volume of those desperately seeking new homes, leading to prices being driven higher and at times – a return of gazumping.
Lettings market

Whilst many of the seasonal trends are still present in a post-Covid world, there are those trends that remain less predictable. Unsurprisingly, in the lettings market we have seen tenant demand peak throughout the 2022 summer months, driven by those looking to settle for schooling, new graduates moving to commercial hubs, and expats relocating to the UK for work. The increasing prices have shown little sign of slowing, despite the cost of living heading in a relentless upward trajectory.

Usually, we see a downturn in activity over the winter months and into a new year, but as the rental property shortage continues, we expect that demand is here to stay. However it raises the question: how long can these uncharacteristically high prices be sustained?

Sales Market

Turning to sales, the prime London residential property market follows a different set of rules to the wider UK market – one reason for this is that many buyers and sellers are discretionary. Last year we saw some potential sellers holding back, because either they were having difficulty finding a replacement property, or perhaps they felt the price rises of 2021 and early 2022 might continue.

With the economic headwinds that our economy is facing, it is likely that those holding off for better prices may now step forward, assuming current prices are maintained, easing some of the congestion in the market.

Capital Economics is predicting prices in prime London may drop by 2% this year, rising again in 2024, compared with a much less upbeat forecast for the wider market. And whilst interest rate rises impact much of the UK, the ability of the average prime London buyer to either service these higher costs, or even revert to paying cash for property, will insulate the market from a slowdown.

One should not ignore the impact of exchange rates either. The current weak pound will encourage overseas buyers. The impact of this after the credit crisis was a significant factor in the strong recovery that we saw from 2009 onwards.

For most people, buying a property is a much more emotional decision, and finding the right property is key, so it is good to remember that ‘one isn’t buying the market, only an opportunity within it.’

Prime Central London average house price data compared to FTSE (2012 – 2022)

Prime Central London average house price data compared to FTSE (2012 – 2022)

*Data source: Zoopla Average House Price Data for Prime Central London