London prime property prices to rise 6% next year despite economic turbulence

What cost of living crisis? London’s prime property prices are forecast to rise 6% next year, putting it in third place behind Los Angeles and Miami

  • London luxury property prices are recovering after the pandemic
  • International buyers also return to the real estate market in the capital
  • Edinburgh will see 8% price growth in 2022 compared to London’s 4%

London luxury properties are forecast to see price growth of 6 percent next year, the third highest globally, despite an increasingly choppy economic backdrop.

The UK capital is just behind Miami and Los Angeles, where prime prices are expected to rise 8% and 7% respectively, according to estate agent Knight Frank.

Madrid ranks fourth with 6 percent growth forecast for 2023, followed by Seoul at 5 percent.

London’s most expensive house prices could rise 6% next year, Knight Frank said

In his Global Prime Forecast, Knight Frank said the London market is being helped by strong demand from domestic buyers.

It is also supported by a resurgence in international buyers, a market that has suffered during the pandemic, thanks in part to the weakness of the pound.

However, the property expert warned that inflation risks will be more persistent in the UK and the euro zone, making them the latest to lower their mortgage interest rates.

Later in 2023 and 2024, he said, this may result in a weakening or reversal of the currency advantage currently enjoyed by those who buy UK homes with US dollars.

Only Vancouver and Melbourne are expected to see a drop in prime property price growth next year, despite uncertain global economic prospects.

Only Vancouver and Melbourne are expected to see a drop in prime property price growth next year, despite uncertain global economic prospects.

Worldwide, the company expects more moderate price growth in 2023, averaging 2.8 percent in the 25 cities it monitors (see chart above).

The price growth gap between the highest and lowest performing cities is expected to narrow from 27 percentage points in 2022 to 12 in 2023.

In most cities, he said, a strong job market, rising incomes, rising equity in prime homes built up during the pandemic and, for those with mortgages, the high ratio of fixed rates, will mitigate the impact of the slowdown.

Growth predictions for 2022 revised downwards

Across the 25 cities monitored, Knight Frank now expects prime prices to rise 4.4% on average by the end of 2022, down from the 6.1% it forecast six months ago.

Despite this reduction, the growth expected for the year is still higher than that observed in nine of the last 10 years.

London is one of those that have taken a hit. Knight Frank has lowered its 2022 projections from around 7% in December 2021 to 4% as of June of this year. In contrast, Edinburgh has seen one of the biggest upward revisions with price growth expected for the year jumping from 5 to 8 per cent.

London is expected to see overall prime property growth of 4% this year, down from Knight Frank's previous prediction of 7%, though things should improve in 2023.

London is expected to see overall prime property growth of 4% this year, down from Knight Frank’s previous prediction of 7%, although things should improve in 2023.

The recent Halifax House Price Index found that while London continues to post slower annual house price inflation than other UK regions, the 7.9 per cent growth rate in July was the highest in almost five years.

With the average property now costing £551,777, the already record-breaking median house price in the capital continues to rise, up to £40,361 over the past year.

Although the luxury residential market sector has a higher proportion of cash buyers and therefore could be considered less exposed to higher mortgage rates, tighter monetary policy and rising interest rates around the world also are inevitably influencing the luxury markets.

Despite this, Miami and Dubai are expected to see double-digit price increases for their prime properties of 12 percent during 2022, though the figure still represents a slowdown compared to last year.

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