Coutts London Prime Property Index Q3 2020

After eight weeks in lockdown that caused the property market to grind to a near halt, Q3 was always going to see buyers and sellers race back in to the market. But while we’ve seen sales jump, prices have fallen back to Earth after the ‘Boris bounce’ in Q1 and are now -1.7% lower than 12 months ago.

The pattern of sales suggests that while the central London property market is lagging, significant demand is coming from buyers looking for spacious homes in outer prime London.

Katherine O’Shea, Director, Coutts Real Estate Investment Service, says, “With more people working from home, buyers are looking for more space, and perhaps a garden to enjoy during the day. This has added more impetus to the recent trend we’ve seen of rising prices, faster sales and more properties for sale in the outer prime markets. Conversely, prime central London – particularly in the upper price bands – is a market typically dominated by international buyers who have been grappling with international travel restrictions, causing this market to lag behind so far this year.”

The lockdown period during Q2 forced Londoners to rethink what they need from their homes. Suddenly, priorities changed – be it a desire for a garden, extra space for a home office or easy access to London’s Royal Parks or communal gardens.

Added to this, the chancellor introduced a temporary Stamp Duty holiday on the first £500,000 of a residential property’s price, which boosted activity in the mainstream market. This improved sentiment in the market overall, leading the media into a frenzy about the ‘Rishi Rebound’.

These factors, combined with pent-up demand from the lockdown period, brought a surge of activity in Q3 and sales volumes doubled compared to the previous quarter.

Alex Lyneel, Coutts Client Journey Manager for Homebuying and Mortgages, says, “The market certainly feels busier, but property professionals – agents, surveyors and conveyancers – had a massive backlog of deals to process, and the surge of activity has added to delays.”

As a result, the volume of deals currently under offer across prime London has risen sharply to 663 in total, up 19.3% compared to this time last year.

The busier market has also meant increased competition between buyers, and more willingness to buy at the asking price. Only 33.5% of properties across prime London sold at a discount to the asking price in Q3, the lowest figure we’ve seen since the index began and down nearly 10 percentage points from 43.2% a year ago.

The average size of discounts is also being squeezed, and now stands at -8.1%. This too, is the lowest figure we’ve seen since our index began, down from -9.8% a year ago. Competition appears strongest in outer prime locations, leading to much narrower discounts in these areas.

“The buying frenzy over the last three months is evident from the listing duration, too,” Alex points out. “It now takes just 147 days on average to sell a property across prime London, down from 162 days a year ago.”

Fortunately, the surge in activity was matched by a welcome boost to supply levels, which had been falling for the last six years.

In Q3 there were 2,038 new instructions, a 75.4% increase on Q2 numbers, as agents dealt with the backlog of new listings to start marketing to eager buyers. There are currently 26.1% more properties available for sale on the open market than there were a year ago.

Outer prime markets are leading the way in new supply as well, says Katherine O’Shea. “New instructions vary significantly from area to area, but most new instructions in Q3 have been in the outer south west prime markets, such as Hammersmith & Chiswick and Wimbledon, Richmond, Putney & Barnes.”

Despite the surge in activity, buyers are extremely price sensitive. There’s still significant uncertainty about the impact of coronavirus on the economy, as well as a lack of clarity about the full implications of Brexit.

Prices across prime London are down -3.6% on Q2, and -1.7% relative to the same quarter in 2019. Compared to prices at the height of the market in 2014, prices are -15.8% off the peak. Looking forward, there are likely to be further price corrections in some locations as the market deals with economic pressures from the coronavirus pandemic.

Katherine highlights that as in other areas of life, the impact of the virus crisis has been unprecedented. “This feels very different to previous crises. Interest rates are at all-time lows, regulatory changes related to affordability have put the banking system on a much sounder footing, and the weak pound continues to make UK property even more attractive to international investors,” she says.

While questions remain about Brexit, the UK is still an attractive destination. Alan Higgins, Coutts Chief Investment Officer, recently commented on the country’s pulling power for global businesses irrespective of its relationship with the EU (Brexit – the UK’s future outside Europe) , and this could see the UK continue to attract high-flying international talent.

Additionally, there are all the other reasons why people choose to live and work in the UK – and therefore invest in residential property here – including culture, education, the legal system, time zone, connectivity and infrastructure. We don’t see these losing their appeal, which should continue to support prime property prices.