According to Rightmove, for instance, house prices in the capital enjoyed a 0.2% boost in December in spite of the economic difficulties at play, pushing the cost of the average home in London to over £660,000.
In particular, across the prime central London (PCL) market, demand and activity levels have remained robust. Recent data from Savills revealed that sales of properties valued at £5+ million were at their highest level in the first nine months of the year since 2006. Indeed, property values across PCL showed a 2.4% growth since the start of the pandemic.
However, as we venture further into 2023, it would be premature to suggest that such robust performance could continue unabated in the next 12 months; indeed, many of the economic and political challenges that we faced in 2022 remain. With this in mind, what’s in store for the PCL market in 2023?
Prices will soften in the wider market
Firstly, it’s worth contextualising that the Prime Central London market typically follows a unique trajectory with respect to the wider UK market.
For many analysts, prices could fall by as much as 9% this year across the wider market, as a result of inflation and rising interest rates. In fact, they’ve already started to soften.
In December, for instance, data from Nationwide revealed that growth had slowed to its lowest rate since mid-2020, while prices had taken their fourth consecutive dip in as many months. As such, there will likely be continued pressure on house prices in the wider market in 2023 as long as the economic factors that are diminishing buying power endure.
PCL is outperforming the rest of the UK property market
The PCL market, however, should be insulated from many of these factors and could outperform the wider market in 2023 as a result. Indeed, if the last few months are anything to go by, data gathered by Savills and Halifax shows that it is already doing just that; so why is this the case?
For one, buying power across PCL is likely to be less impacted by the economic slowdown that the lower to middle echelons of the market. As such, with a higher presence of high net-worth individuals, activity levels and demand should remain stronger across London’s prime residential areas than the wider market, despite the economic turmoil that is likely to define 2023.
Similarly, the weakened pound has encouraged an influx of foreign buyers into the market, which should contribute to higher activity and demand levels in the PCL market than the rest of the country. Certainly, with Carter Jonas saying that property was 25% cheaper in September 2022 than in June 2021 for overseas investors, it’s no surprise that they constituted 57% of the property investors in the capital last year.
As such, as long as the pound remains weak, this trend looks set to continue into 2023, which should insulate the PCL sector from the difficulties the wider market will face.
Additionally, across the PCL market, many homeowners and investors are also buy-to-let landlords (BTL). Given that both demand and rental prices have risen over the previous 12 months, the prospect of increased rental yields may result in an increase of buyers wanting to capitalise on rising prices. As such, rent prices are predicted by Knight Frank to increase by 6% in 2023; there will undoubtedly be opportunities for buy-to-let investors to profit from this year.
Finally, one of the main reasons that the PCL market has acted so independently to the rest of the market in the past is the lack of supply of homes. With demand so high, and supply so low, the competitiveness of the market should certainly support prices in the next 12 months, particularly because demand is set to increase by 30%.
As a result, unlike the rest of the market that is set to decline, prices for properties valued at £15m+ could remain as they are or even grow by 1-2% in 2023.
PCL market remains attractive
To briefly conclude, as central banks continue to combat inflation in 2023, there is little question that economic and political uncertainty will have an impact on the UK property market in the next 12 months. However, investments in the PCL sector obviously remain attractive and have – as I have outlined above – every chance of withstanding the economic headwinds that are currently dampening the outlook for the wider market.
Therefore, the resilience with which the PCL market navigated the challenges of 2022 should continue in 2023.
However, to help homeowners and investors navigate the market against the complex economic backdrop, lenders must be on hand to assist. Flexibility will be key, and those lenders who can provide it will be better placed to harness the opportunities arising from PCL’s overdue recovery.
