UK’s prime housing market is past ‘peak pain’ and values projected to rise by almost a fifth by 2028

• UK’s prime housing markets to bottom out mid-2024 and recover more quickly than the mainstream
• Prime London:
• Prime UK regional markets:

• Prime central London projected to be the strongest performer in 2024 with no price falls although domestic political uncertainty and higher tax environment will slow long-awaited recovery
• Outer prime London: -2.0% forecast for 2024 due to greater mortgage dependency, though stronger than -4.0% projection for London’s mainstream markets

• Marginal -1.5% average falls forecast across markets outside of London in 2024 (vs -3.0% for UK mainstream)
• 5-year forecast of +18.6% by end 2028 (upgraded from 10% five-year growth forecast last year as bulk of falls now behind us)
• Lower value prime markets of the Midlands and North of England, Scotland and Wales to show strongest growth over the five-year period
• At the end of the forecast period (2028) a £1 million home in prime regional UK will cost c. £1.19m, according to Savills.

Prime markets (broadly the top 5-10% of a given market by value) will recover more quickly than the mainstream in 2024 due to lower reliance on borrowing and values are projected to rise by almost a fifth in total by the end of 2028, according to the latest five-year residential market forecasts from property advisors, Savills.

Cash and equity rich buyers continue to underpin activity

“Cash and equity rich buyers – synonymous with prime markets – have remained the most resilient buyer group over the past year, with transactions remaining 3.5% higher than the 2017-19 average,” comments Frances McDonald, director of residential research at Savills.

“While interest rates and borrowing relative to incomes remain high there is expected to be a divergence in performance between locations with the highest concentration of equity, with the prime markets expected to begin to recover from mid-2024 and see positive price growth from 2025.”

Prime UK house price forecasts 2024-2028

Source: Savills Research

Note: These forecasts apply to average prices in the second hand market, new build values may not move at the same rate

Prime central London – unique set of drivers

Nowhere is the equity vs cash distinction more pronounced than in the rarefied market of prime central London, where only 23% of buyers have relied on borrowing so far this year, according to Savills transaction analysis. 

Underlying demand is expected to be driven by global wealth generation. The number of ultra-high-net-worth individuals (UHNWIs), a key buyer group for central London homes, is expected to rise by 53% over the next five years, according to UBS, expanding top-end London’s potential buyer base.

This high value market has seen the smallest fall in values in 2023, and is the only market not forecast to experience a dip in values in 2024. Price growth of 3.5% is expected in 2025, rising to 6.0% in 2026 as the global economy picks up more significantly and any domestic political instability that the next general election causes subsides, and 18.7% over the next five years.

Prices remain -19% below their 2014 peak in this rarefied sub-market, although based on the £4.7 million average value in the Savills index, the average prime central London property could see a gain of £850,000 over the five year forecast period.

“With values still well below historic peaks, prime central London represents a ‘buy,” continues McDonald.  “Recovery looks well overdue though at around 19%, we expect it to be much less aggressive than in previous cycles given a higher tax environment and greater scrutiny of sources of buyer wealth.”

Markets more exposed to debt still expected to see small value dip in 2024

Higher debt costs have had a more significant impact across other parts of the prime market, with values falling more in line with the mainstream over the past 12 months.

With interest rates expected to remain at their current level until the second half of next year, affordability will remain stretched in some areas. However, the prime markets will respond more quickly than the market as a whole to improved sentiment, Savills says, and prices are likely to bottom out more quickly. 

Lower value markets further from London to outperform

Modest price falls of -2.0% for outer prime London and just -1.5% for the UK’s prime regional markets are forecast in 2024. 

In outer prime London, there is expected to be a continued short term divergence between property types.  Smaller properties, particularly flats, have seen larger price falls over the past year (-3.4% vs -1.4% for houses) given greater affordability constraints on first time and investor buyers.

For the prime regional markets, the trends seen so far in 2023 are likely to continue next year with debt-dependence very much dictating market performance. That means prime markets closest to London, most notably the suburban and commuter hotspots, where a higher proportion of buyers use a mortgage, will see more significant price falls in 2024 and lower five-year price growth than the likes of North England, Scotland and Wales.

But across all prime markets, price falls in 2024 will be less significant than this year. Overall, growth is forecast to peak in 2027 at 6.0% across outer prime London and 6.5% for prime regional markets, once we see a more meaningful improvement in the UK and global economies and affordability pressures have eased.

Over the next five years, growth will total 18.6% in prime regional markets, adding £186,000 to the value of the average £1million home, and 17.4% for outer prime London. The strongest performing markets are expected to be the Midlands and North of England, Scotland and Wales, with all forecasted to see growth of more than 20% in the five years to 2028.

But as in the mainstream housing markets, Savills expects price growth across all prime regions to begin converging towards the end of the five year period. From 2028 onwards, prime London and its hinterland are expected to outperform the likes of the Midlands and North of England once again.