Despite the jump in mortgage rates from nearly 2% to highs of 6%, the actual drop in UK and London property prices was much less than the 10% drop forecasted by both the OBR and estate agent Savills
The UK Office for Budget Responsibility (OBR), which forecasts on behalf of the Treasury, forecasts house and apartment prices dropping by 4.7% next year, and mortgage lenders like Nationwide are expecting a decline of 4%. Leading London and UK estate agents forecast declines of 1 to 5%.
A total of 175 homes in London were sold for over £10 million in the 12 months to November 2023, according to estate agent Knight Frank, marking the highest number in the last eight years.
Despite the jump in mortgage rates from nearly 2% to highs of 6%, the actual drop in UK and London property prices was much less than the 10% drop forecasted by both the OBR and estate agent Savills.
The UK’s Office for National Statistics (ONS) estimated that, on average, UK residential prices drop by just 1.2% in the 12 months to October 2023 to £288,000; the prices in London dropped by 3.6% to £516,000 in the same period.
Zoopla, an online property sales platform, estimated that prime London areas were relatively steady because wealthy locals and foreign buyers were not dependent on mortgages.
Average prices in the City of London increased by 0.3% to £765,000, while prices of properties in higher-end areas such as Kensington and Chelsea saw a drop of below 1% to £1.2 million. Outer London areas like Barnet, Croydon and Bromley dropped by nearly 3 to 4%.
The housing market has been more resilient than many expected, said Zoopla executive director Richard Donnell.
From a net-yield point of view, the property market, albeit lower than the 2022 high, cannot be regarded as cheap. Average net yields on prime London student accommodation is 4.25%, and in cities like Oxford, Birmingham and Manchester, more than 5%, as per Knight Frank.
The net yields for new rentals are nearly 3.9% in prime London and around 4.5% in other major cities.
Analysts remain hopeful that the residential property market will appreciate in 2024.
There has also been a change in purchase trends among property investors in London, said Philip Harvey, a senior partner at Property Vision, an adviser for purchasers.
Younger buyers are inhabiting parts of town that their parents would never have considered, Harvey added. Those working in tech hubs around Shoreditch are buying properties around Hackney and Dalston in the East End. Others are seeking houses with gardens in south-west and north London.