Offers accepted in London's prime property market reached their highest in a decade in July, premium estate agent Knight Frank says.
A combination of factors has led to the pipeline being stronger than it was in the final months of the stamp duty holiday in 2021.
First, international travel is resuming, with the number of international arrivals at Heathrow in June only 17 per cent down on the same month in 2019. This compares to an equivalent drop of 87 per cent in the same month last year.
Second, prime London markets are relatively good value as buyers continue to reassess how and where they want to live after the Covid-19 pandemic.
While all the attention was on the escape-to-the-country trend during the pandemic, price growth in London was lacklustre, even after six subdued years. Average prices in prime central London are still 15 per cent down on their previous peak seven years ago.
There is also a creeping sense that investors are looking more closely at safe-haven assets, which has traditionally benefited the prime London property market.
Investor nerves have been clearly rattled this year, as central banks attempt to avoid stagflation. After steep declines due to a strengthening US dollar, the gold price has risen modestly since mid-July against a backdrop of geopolitical tension.
The picture isn't completely rosy, though, and Knight Frank's head of residential research Tom Bill said there are “risks for the market”, albeit “not yet looming large”.
He cited rising interests rates in the UK, which yesterday the Bank of England lifted to 1.75 per cent, the largest leap in 27 years
“However, the impact has not yet had a material impact on UK property markets, with mortgage offers standing for six months and most people on fixed-rate mortgages,” he said.
He is also dubious rising interest rates will ever materially affect the prime London market, given the affluence of those transacting within it inures them to higher borrowing costs.
Underlining his thesis is the current strength of higher-value markets. While average price growth in Prime Central London (PCL) was 2.8 per cent in the year to July and 5.2 per cent in prime outer London (POL), the performance was stronger in higher price brackets.
Mr Bill highlighted one other unknown factor that might impinge on the market: the identity of Boris Johnson's successor in the race to become the next UK prime minister.
Rental market lagging sales
While it's increasingly business as usual for prime London sales, the lettings market remains a long way from normality.
Demand is robust but supply remains tight, with the imbalance between supply and demand widening last month.
A flood of short-let properties came on to the market last year due to staycation restrictions, which drove down rental values. As the economy reopened, supply subsequently fell and demand spiked, causing rents to rise.
The arrival of international students and corporate tenants this summer further fuelled the imbalance.
“It is unlikely the situation will change meaningfully while the sales market in London remains so robust,” said Mr Bill.
For now, there remains strong upwards pressure on rental values. Average rents in PCL rose 22.2 per cent in the year to July, a rate that has narrowed from a peak of 29.2 per cent in April. In POL, the annual rise fell to 17.3 per cent from 23.5 per cent in April.
And it is not a trend limited to London: prime residential rents in global cities are rising at their fastest pace since 2010.