PCL Property Market Fuelled by Cash Buyers Amidst Mortgage Rate Climbs
The luxury property market in Prime Central London (PCL) continues to showcase the dominance of cash buyers, according to recent analysis conducted by LPF Member - Savills. With mortgage rates on the rise, nearly three-quarters of residential property deals in Prime Central London (PCL) were completed by cash buyers, contributing to the remarkable resilience of prime London prices in the face of market slowdown.
Cash Buyers' Dominance in Prime Central London
Savills' research reveals that cash buyers accounted for 71% of property purchases in PCL in the year so far, highlighting their advantage in being less exposed to concerns surrounding increasing interest rates. This trend has helped maintain the stability of PCL prices, with average home prices experiencing only a marginal decrease of -0.2% on the quarter and -1.0% on the year. Remarkably, property values are still 3.9% above their pre-pandemic levels.
Contrast with PRIME OUTER London
In comparison, Prime Outer London (POL) has experienced more significant price drops, indicating a growing divergence between cash buyers and other groups in their ability to transact. Savills' data suggests that 35% of property sales involved cash buyers, underscoring the impact of mortgage rate climbs on the market segment that typically relies more on debt.
Impact of Mortgage Rate Climbs on Different Property Segments
While the high-end segment of London's property market remains resilient, lower-value homes in prime locations, which tend to be more exposed to borrowing costs, are experiencing the effects of escalating mortgage rates. The £5mn+ segment has maintained flat prices throughout the last year (-0.1%), while the £500,000-£1 mn market has seen declines of -2.1%, and the sub-£500,000 segment has experienced further drops of -2.5%.
Interestingly, within the challenging market conditions, properties considered "best in class" and unique homes continue to garner significant demand, often resulting in sealed bids. The pricing gap between properties in immaculate condition and those in poor condition has widened, with best-in-class properties commanding an average price of over £2,000 per square foot. This represents a 37% premium compared to a 25% premium observed a decade ago.
Liza-Jane Kelly, the Head of London Residential at Savills, highlights that while market conditions have slowed down, the easing of stock constraints is noticeable. Micro-markets that offer turnkey properties and lock-up-and-leave options in prime central London neighborhoods are performing exceptionally well. These locations, which also provide proximity to workplaces for office workers, attract a significant buyer base.
International Buyers' Cautious Return to London
Savills' research also indicates a cautious return of international buyers to London, particularly in traditional enclaves such as Mayfair, Westminster, and Marylebone. These areas have witnessed positive price performance in Q2, with Mayfair experiencing a 1.1% increase, Westminster showing a 0.4% increase, and Marylebone demonstrating a 0.2% increase. Conversely, domestic markets like Richmond and Holland Park, which outperformed during the pandemic, have seen value declines in the first half of the year.
The growing trend of cash buyers acquiring high-end London properties remains robust, even as mortgage rates continue to rise. Savills' data shows that equity buyers purchased 71% of PCL homes between January and May 2023, a notable increase from 60% in the same period the previous year and 61% before the pandemic in 2019.
“The established prime markets most synonymous with equity rich buyers are holding up the strongest amid mortgage market turbulence.”
The contrast becomes evident when comparing the resilience of prime-location homes in PCL, where cash buyers dominate, with suburban areas more reliant on mortgages, making them more susceptible to rate rises.
Cash Buyers' Influence Extends to PRIMe Outer London
The proportion of cash buyers for high-end homes rose to 35% between January and May 2023, up from 26% in the same period the previous year. However, outside of London, prime property values experienced a 3.5% decline year on year in the second quarter.
Rupert des Forges, a partner at Knight Frank, highlights that pockets of wealth emerging from regions like Turkey, Scandinavia, and the West Coast of the US are currently driving the high-end market in central London.
As the London luxury property market navigates the challenges posed by rising mortgage rates, the dominance of cash buyers continues to bolster the stability and resilience of PCL prices. While outer prime London experiences price drops, the allure of "best in class" properties and the return of international buyers to traditional enclaves further strengthen the high-end segment. The market's dynamics emphasise the growing divergence between cash buyers and other groups in their ability to transact, reinforcing the significance of equity-rich buyers in driving the London luxury property market forward.
Priya Rawal, Founder and CEO of The Luxury Property Forum says:
“Rising mortgage rates and falling house prices do not appear to be deterring the super-rich. Despite price drops on London’s outskirts and mortgage turbulence, the draw of ultra luxurious “best in class” properties in PCL, combined with the influx of international monies has reinforced the significance of equity-rich buyers in driving the London luxury property market forward. Whilst deals may be taking longer to close and buyers appear more cautious, the PCL market remains strong.”