UK PRIME HOUSING MARKET RECOVERY TO LAG BEHIND THE MAINSTREAM
• Price growth in prime markets is forecast to be below growth in the mainstream market
• Prime Central London is the only market to see falls in 2025, as it will be more directly affected by tax changes in the Autumn Budget
• Outer prime London to see growth of +14.7% over the next five years due to demand from needs-based buyers and falling mortgage rates
• Prime regional growth will total +18.2% by 2029 benefitting from displaced demand and access to schooling

Savills has released its forecast for the prime housing market, revealing that price growth over the next five years will be below that of the mainstream markets, given tax changes introduced in the 2024 Autumn Budget.

“In a normal housing market recovery, you would expect the top-end of the market to recover first, responding quickest to a change in sentiment,” says Lucian Cook, Head, Residential Research, Savills.

“However, the additional stamp duty surcharge for second homes, changes in ‘non-doms’ taxation and VAT on school fees are likely to offset some of the impacts of future cuts in interest rates this time around.”

While Savills has forecast that prices in prime central London will rise by around +10% over the next five years, the firm expects them to fall by -4.0% this year. 

“The markets of prime central London are most directly affected by the abolition of ‘non-doms’ status and an increased stamp duty barrier, both of which are likely to push some of the demand in these areas to the rental market,” says Cook. “And so, even though prices are already 20% below their June 2014 peak, we expect a further modest fall in prices next year, as the market finds its level in a changed fiscal and regulatory environment.”

Stronger growth is forecast in the domestic prime London markets, where there are more needs-based buyers who are set to benefit from a fall in mortgage rates. Here, +14.7% growth is expected over the same five-year period.

“While there are reasonable prospects for price growth in these markets over the medium term, we expect prices to remain flat next year for the best properties in the likes of Fulham, Chiswick, Wandsworth and Islington,” says Cook. “Those markets are less likely to see a ripple of demand from central areas, at a time when affluent upsizers are reacting to higher school fees.”

The outlook is somewhat brighter in the prime markets outside of London. Here, price growth of +2.0% is forecast in 2025, contributing to a five-year projected growth of +18.2%. 

“Coastal second home hotspots are likely to remain fairly price sensitive next year,” says Nick Maud, Director, Research, Savills.

“But elsewhere, prime regional housing markets are likely to benefit from some displaced demand as families look to strike a balance between house prices, commutability and access to schooling. And while increased exposure to inheritance tax is likely to mean a bit more stock comes to the market from downsizers, this is unlikely to upset the underlying balance between supply and demand.”

“As interest rates fall, mortgage stress test using a lower interest rate will inadvertently allow borrowers to borrow more, thereby increasing their purchase power, which in our opinion should drive more interest into prime central London residential,” comments Ruben Koh, Senior Director, Head, International Residential Sales, Savills Singapore.

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