May was a mixed picture for both supply and stock according to the most recent Lonres review. While agreed sales volumes across prime London picked up compared to April’s figure, new instructions across prime London were 7.9% lower than a year earlier and 0.1% below the 2017-19 average. However, the early part of the year saw higher numbers of homes coming to the market and the year-to-date figure is 5.2% up on last year and 12.3% above the 2017-2019 average.
The 0.5% interest rate rise by The Bank of England’s Monetary Policy Committee means the base rate now stands at 5% – the highest in 15 years, since April 2008. This will clearly worry many mortgage holders, despite the caveat by Andrew Bailey, Governor of the Bank of England, that: “The economy is doing better than expected, but inflation is still too high and we’ve got to deal with it... if we don’t raise rates now, it could be worse later. We are committed to returning inflation to the 2% target and will make the decisions necessary to achieve that.”. The biggest impact will be the significant reduction in housing sales as people are unwilling to choose this moment to take out a mortgage, especially if there is talk of waiting a year will make all the difference. Simon Gammon, Managing Partner at Knight Frank Finance says: "It’s been a disappointing week for anybody that needs to refinance this year. Markets probably require two or three months of meaningful falls in core inflation before swap rates begin to ease and lenders can pass that onto borrowers via lower mortgage rates. That means it’ll likely be September at the earliest before we see any decent falls in mortgage rates and that may stretch into 2024 if inflation proves particularly stubborn. Once we do see a couple of positive numbers and swap rates begin to fall, we’re confident that lenders will drop rates quickly."
The numbers of sales falling through and properties being withdrawn from sale are in line with recent trends, so overall the stock of homes available for sale is growing very slightly – at the end of May it was 1.3% higher than a year earlier. The number of properties under offer, a lead indicator, was 20.4% lower than a year earlier, suggesting that sales activity is unlikely to increase significantly over the coming months.
Prices across prime London remain broadly static. The average achieved sale price in May was 0.6% down on a year earlier. While the average discount to asking price fell sharply to 7.1% and the proportion of properties seeing price reductions before sale also fell, to 45.6%. All of which suggests that sellers are becoming more realistic on pricing.
While the overall volume of stock on the market is growing slowly, there are variations to be found among the price bands. There was 32% more stock on the market with an asking price of £5m or more at the end of May compared to the 2017-19 average. By contrast there were 5% fewer properties available at £1 to £2 million.
The top end of the sales market cooled again after its strong start to 2023. Stock levels for properties priced at £5m+ is growing while the sales figures for May suggest that demand may be falling slightly. New instructions at this top end of the market rose slightly (+2.1%) in May compared to a year earlier, with the current level 47.7% above the 2017-19 May average. The number of properties going under offer over the month followed a similar pattern. There was a 28.9% fall on an annual basis but under offers remain high in a longer-term context – 42.1% above the 2017-19 May average level. The level of transactions in the £5m+ market across prime London also followed the same trend. There were 31.0% fewer agreed sales in May compared to a year earlier, although this figure is 13.0% above the May pre-pandemic average.