The tightening grip of the mortgage crisis in the UK is now compelling affluent property sellers in London to consider price reductions to avoid jeopardising their deals.
The latest report from research firm LonRes reveals a significant surge in price reductions for properties valued at £5 million ($6.4 million) or more. The data indicates that these reductions nearly doubled during the year leading up to July compared to the same period in 2022. Concurrently, transaction volumes within London’s prime property market, encompassing the city’s most exclusive postcodes, experienced a decline of over 25% in July in comparison to the same month a year earlier.
Although the upscale housing market is less directly impacted by mortgage market volatility due to its reliance on equity, this turbulence is still causing uncertainty among both buyers and sellers. Nick Gregori, Head of Research at LonRes, remarked, “While the volatility of the mortgage market has less direct impact in this equity-driven sector, it undoubtedly affects sentiment, creating uncertainty among both buyers and sellers alike.”
The convergence of expensive borrowing costs, economic unpredictability, and a generational cost-of-living crisis has led to a depreciation in the value of millions of UK homes this year. Consequently, a price expectation gap has emerged between sellers and buyers within London’s luxury housing market. This disparity is resulting in a rise in collapsed transactions, with the number of deals exceeding £5 million that fell through increasing by 15% between January and July compared to the same period in the prior year.
Despite this, the luxury housing market in London exhibits more resilience compared to lower-priced property deals due to its lesser reliance on debt. July saw a 12.4% drop in prime London properties as a whole, while new instructions for properties valued at £5 million or more increased by almost one-third year-on-year.
Even though the number of properties going under offer in July dipped compared to the previous year, this decline is less pronounced than the actual sales drop. LonRes suggests that if these ongoing deals conclude, sales figures in the upcoming months might appear more favourable.
Nick Gregori from LonRes expressed the potential scenarios ahead: “If borrowing costs have settled down by then and the economy starts to perform better, we could see a stronger close to the year.” However, he also cautioned that if recent market volatility persists, transaction numbers could continue to remain subdued, and property values might face additional pressure.