Q3 – 2024 | London Property Market Update

In the third quarter of 2024, the UK property market demonstrated considerable adaptability, as often occurs even in extended crises, despite ongoing economic uncertainty nationally and internationally. After a lengthy period of price fluctuations and unstable demand, the market is now showing signs of significant recovery.

In August 2024, the Bank of England cut the interest rate by 0.25%, marking the first reduction since the rate hike cycle began in 2021. With the base rate now set at 5%, the goal is to encourage borrowing and spending. It will be interesting to see if the average rate could be reduced further over the next year and a half, supporting a robust market recovery. Such reductions could also make mortgages more accessible, boosting housing demand.

During this third quarter, according to data from TwentyCi, the supply of properties for sale increased by 8.8% compared to the same period in 2023, while sales rose by 23.4%, suggesting that demand remained strong even after the general elections in July.

Trends

According to Nationwide, house prices experienced their highest growth rate since fall 2022, with an annual increase of 3.2% in September 2024. This trend is expected to continue through the end of the year, driven by sustained demand, with a projected increase of 3%. However, price reductions are present, depending largely on sellers’ motivations. In some cases, discounts can reach up to 10% when sellers are in urgent need to sell. In my experience, property valuations are sometimes not entirely accurate. Furthermore, London consists of numerous micro-markets with distinct dynamics. Some areas, particularly in the city’s north, maintain asking prices, with properties occasionally exceeding expectations through premium offers due to competition among interested buyers.

A recent transaction I handled in a delightful area in North London, helps to better understand the London’s property market dynamics. My client, among various interested buyers, offered an amount above the seller’s asking price to secure the deal. Is it worth it? Yes, absolutely. In such cases, it is essential to conduct a very precise market appraisal of the property, consider the results of a homebuyer survey, and offer an additional amount that makes strategic sense.

Shall I Rent or Shall I Buy?

Each individual has specific needs and makes this decision based on personal considerations. However, despite improved access to leverage, London remains one of the most expensive cities to live in, with tenants typically spending just over half of their net income on rent.

Exclusive Value Seeking Stability

The prime market seeks only stability. According to TwentyCi data, London’s prime segment saw a slight demand decrease of 2.5% in the third quarter of 2024. However, some areas, such as Hampstead, registered a demand increase of 19.6% between the first and second quarters, reflecting appeal for certain areas, especially among wealthy families seeking stability and quality of life. Despite an overall slowdown, London remains a highly sought-after destination.

According to the World’s Wealthiest Cities Report 2024, 227,000 people among London’s 8.8 million residents hold at least 1 million dollars in ready-to-invest liquidity. Nevertheless, Keir Starmer’s tax proposal targeting higher incomes may discourage these high-end investors, prompting them to consider markets with more favorable tax regimes. This could reduce demand in London’s prime real estate sector, potentially leading to price declines. At the start of 2024, Lonres reported a 10% drop in average sale prices, attributed to factors like Brexit, the pandemic, the Ukraine conflict, and global instability, including tensions in the Middle East.

Over the past decade, according to Lonres, the prime London market has experienced price stagnation. Since 2013, the average price per square foot has decreased from £1,686 to £1,667 in 2023, with minimal growth in property value. Despite this, London’s prime market has shown remarkable stability, even if growth has been modest. One notable shift in recent years has been the changing profile of buyers: where Russian oligarchs once dominated neighborhoods like Chelsea, wealthy buyers from the United States, India, and Arab countries now play a prominent role.

Letting or Selling?

According to TwentyCi data, the number of rental properties listed for sale has reached the highest level in a decade. In the third quarter of 2024, 11.3% of new properties for sale had previously been rental properties, compared to 6.8% in the prior year. This shift toward selling over renting is particularly evident in prime areas. Meanwhile, the first outskirts of the city are driven by a highly local market of residents who have lived in their homes for years. Likely, rising economic pressures, regulatory changes, and the proposed Renters’ Rights Bill (currently in development), designed to strengthen tenant protections, may further increase restrictions for property owners, pushing more investors to exit the market.

Looking Ahead

Despite global economic challenges, London’s property market remains solid, with a constant demand and growing supply. Price reductions reflect an evolving market, and London remains a reliable focal point for international investors. Political and financial decisions in the coming months will shape the market, with moderate growth expected until current challenges are resolved, opening new opportunities for the future.