As a result, with prices expected to rise by 21.6% by the end of 2028, it’s fair to say that an increasingly positive outlook has been instilled in the UK property market.

This optimism has also been felt in the prime central London (PCL) property market; a recent report revealed that new listings were up by a significant 31.5% in Q1 2024 compared to Q4 2023, while transaction volumes enjoyed an upswing as well.

Clearly, this improvement in the economic climate is expected to translate into significant market activity and growth. However, this is by no means a foregone conclusion, and it would be remiss of me to suggest that some uncertainties – from the outlook for interest rates all the way through to the impact of a looming general election – do not remain.

To explore these uncertainties further, the team and I took some time to dive into the top five trends that could shape the PCL market in the coming months.

 

Sponsored

Are you up to date with the latest vulnerability requirements?

Sponsored by Halifax Intermediaries

The outlook for interest rates

We discussed our thoughts on the outlook for the Bank of England’s base rate and its impact on the PCL market, and I have summarised these below.

“Although inflation remains above the Bank of England’s 2% target, experts are forecasting that this will change when the next data is released. This, in turn, could shift the thinking of the Monetary Policy Committee [MPC] on Threadneedle Street, with many in the property and mortgage markets expecting the base rate to fall from June.

“However, it would be unwise to suggest that this will have an immediate impact, given that the cost of borrowing is not going to fall as quickly as it rose. The markets are generally pricing in three 0.25% cuts to the base rate by the end of the year, but even still, we will be in a higher-interest-rate environment.

“Brokers and the clients are adapting to the fact that historically low rates are now a thing of the past. To that end, lenders must continue to collaborate with brokers to provide investors with the flexible finance and bespoke support that they’ll need to navigate the coming months.

“If the economic climate does continue to improve, with inflation falling further and interest rates coming down, then we may see investors who have been keeping their powder dry return to the market, deciding that now is the time to act. In turn, this could encourage an uptick in demand for PCL properties throughout the second half of 2024 and into 2025.”

 

The end of the non-dom tax status

The end of the non-dom tax status has been the topic of much discussion, so I asked David Gwyther, our business development director, to share his thoughts on how this could affect investor behaviour.

“With such a large proportion of investors with PCL property hailing from overseas, the impending changes to the non-dom tax status have naturally sparked a significant amount of debate. That said, the actual impact might be less significant than initially perceived.

“The speculation and uncertainty around the reforms may have momentarily slowed down some investment plans, but the long-term fundamentals of investing in London property remain robust. Alongside its track record for capital appreciation and prestigious education system, London’s appeal as a cultural, historical and financial hub is unlikely to wane significantly as a result of the end of the non-dom tax regime. Consequently, we are not expecting to see a drastic shift in investor behaviour in the foreseeable future.

“However, the new rules will require careful thought and planning, so lenders should be committed to supporting brokers and clients who will soon need to navigate these changes. Providing tailored financial solutions that adapt to evolving market conditions will be critical, ensuring that investors can capitalise on emerging opportunities in the PCL market in the years ahead.”

 

The impact of the general election

Stephen Murrell, our business development manager (BDM), shared his views on how the looming general election could affect PCL investments.

“In many respects, the PCL market has already accepted the result of the election to be a foregone conclusion, given the significant lead Labour currently has in the polls. As a result, it’s unlikely that this election will trigger wholesale changes in the market. PCL is unique; it sits away from the wider UK property market with its own distinct microclimate.

“Although prices do still tend to decelerate in the months leading up to and following a general election, global factors have a much more significant influence than domestic politics. Consequently, any fluctuations in prices will likely be influenced by events beyond Westminster, minimising the impact of the upcoming election.

“That said, after the turbulence of recent years, the election should at least bring about a greater degree of certainty, and the market will likely respond well to a new government with a strong mandate from the electorate coming to power.

“Come what may, lenders must remain steadfast in their commitment to helping brokers and their clients navigate this election year by providing as much flexibility and certainty as possible in the coming months.”

 

The London property market’s next hotspots

Next, I spoke to James Ray, our BDM, about where he thinks the next property hotspot could emerge.

“We often talk about prime central London (PCL) as being a distinct market that dances to a different tune than the rest of the UK property market. However, we also recognise the great deal of variation within PCL and differences in how boroughs or neighbourhoods are performing.

“In the last few years, for instance, the traditional jewels in the PCL crown, such as Mayfair, Belgravia and Knightsbridge, have seen a slight deflation in prices. In contrast, other areas in central London – that may not be traditionally thought of as ‘prime’ locations – have enjoyed significant growth, creating hotspots in different parts of the capital. Kings Cross, Clapham and Islington are examples of this.

“Ultimately, we should never dismiss the enduring appeal of prime London locations, and I think we could see a resurgence in the coming months across the historic[al] PCL postcodes.”

 

A seller’s market is on its way

Finally, Wendy Scott, our BDM, explained why she thought a seller’s market was on its way in the PCL sector.

“Despite the evident shortage of supply in the UK residential property market to meet the demands of all potential buyers, it is fair to acknowledge that we have been in a ‘buyer’s market’ for some time now. Zoopla’s latest UK Housing Market Report, for example, reveals that approximately 20% of sellers have had to slash their asking prices by more than 10% to finalise a sale. Certainly, the word on the street from professionals who work in the PCL markets supports this, with reports of increased numbers of viewings taking place before sales are made, at a time when many are uncertain and postponing final decisions.

“However, it’s highly probable that this will change over forthcoming months, and we may see the return of a ‘seller’s market’ due to a more competitive landscape, favourable exchange rates and future interest rate reductions, not to mention the pent-up demand [that] has been created by those who have ‘hedged their bets’ for a while.

“Overall, it appears that buyer commitment is improving, and that the forthcoming general election isn’t a significant factor in the minds of buyers. In conjunction with improving economic indicators and a market [that] has been lethargic over recent years, this seems to bode well for a more active housing market once again.”

 

Final thoughts

My biggest takeaway from discussing these pertinent points with the business development team is that much remains to be seen. Lenders need to work closely with brokers to ensure that potential investors are well-informed and can move with speed and flexibility as the market recovers.

As such, by offering bespoke solutions that acknowledge a buyer’s financial situation and align with their distinct needs, lenders can allow a wider range of borrowers and investors to access the wealth of opportunities that could emerge in the months to come as the economic horizon brightens.