October saw another relatively subdued performance for the prime London sales market. Average achieved prices fell by 3.3% compared to a year earlier.

While this is the largest annual fall since May 2021, values overall have been broadly unchanged with little significant movement in either direction for almost a decade. Looking back at average October prices over this period, they have stayed in a range of between £1,250 to £1,350 per sq ft in each year from 2014 through to 2023 and currently sit very close to the ten-year average.

Monthly Prime Data – October

Source: LonRes

Activity measures show a mixed picture. There were 7.2% fewer new sales instructions in October compared to the same month last year and 3.2% fewer than the pre-pandemic (2017-2019) October average. Transactions saw larger falls, with 29.5% fewer sales than a year earlier and 8.2% fewer than the pre-pandemic (2017-2019) October average.

October is traditionally the month with the highest number of properties going under offer, as sales are agreed on September’s new listings and buyers hope to conclude their moves before Christmas. While slower conveyancing may scupper this ambition for some buyers in today’s market, under offer numbers did indeed pick up in October, with 9.7% more than a year earlier. However, it is worth noting that buyer demand last October was negatively impacted by Liz Truss’s brief spell as Prime Minister.

LonRes’ wider market metrics suggest that sellers this autumn may be more motivated than in past years. The number of properties being withdrawn from sale is 4% lower than a year earlier while the number being reduced in price is 15% higher.

Compared to pre-pandemic benchmarks the change is even more significant. It may be the case that vendors are reluctant to withdraw and re-list later if they feel that the market will get weaker before it gets better, so are staying on the market longer and reducing asking prices to try and secure a sale.

LonRes says it has seen a shift in the supply-demand dynamics of the £5m+ market in recent months, and this continued in October. Sales volumes fell by 31.6% compared to a year earlier while there were 20.4% more new instructions. The fall in transactions may seem big but this follows two years of strong activity; the latest figure is 8.3% higher than the pre-pandemic (2017-2019) October average so what we’re seeing is a return to more normal levels of demand.

Data on price reductions gives a further indication of the change in this market. Prior to 2020, this measure behaved much the same across all price points, with data for £5m+ slightly more volatile. In October 2021 less than one in five £5m+ properties were reduced before sale, while for those priced at under £1m it was almost half. This October the figures were much closer together – 45.2% for under £1m and 44.2% for over £5m – showing how the top end of the market is now much more in line with the lower bands.

Annual rental growth across prime London slowed slightly to 8.1% in October. However, this is the twenty-seventh month in a row that rents have risen on this basis. The latest rise means rents are now 33.0% above their 2017-19 (pre-pandemic) average. All areas and sub-markets have seen strong growth but prime fringe** was the best performer for the eighth month in a row, recording an annual rise of 11.2%.

Tenant demand still appears high, but recorded activity is low as a high proportion of properties are being let without listing, so are not captured in the data. Lets agreed in October fell by 3.7% compared to a year earlier, and were 54.5% lower than the average October levels recorded in 2017-2019. Annual growth in new instructions was 17.2% in October.

Rising instructions and continuing low levels of newly agreed lets mean that the stock of homes available is growing compared to the low point reached at the end of 2021. At the end of October there were 60.9% more properties on the market to let than a year ago. However, the current level is still 39.5% down compared to the end of October 2019.

Breaking these results down by price point shows that the shortage of rental properties is more acute at the more affordable end of the market. For properties available at less than £750 per week, there are 29% more homes on the market compared to a year ago but 65% fewer than four years ago (chart 4). At higher price points the longer-term drop is much lower, for example above £2,000 per week there are only 15% fewer homes available than four years ago.

Nick Gregori, head of research, LonRes, said: “October marked the one year anniversary of the political and economic turmoil of Liz Truss’s brief spell as prime minister. The prime London sales market as a whole hasn’t really changed much in the time since. Values are only slightly lower and activity has fallen back to typical longer-term trends. However, there has been a more obvious shift, in the previously strong £5m+ market which has seen an increase in new instructions and move towards more mainstream prime market trends.

“With limited expectation of significant price growth or falls in what is a largely discretionary market, there seems to be no rush for many potential buyers and sellers. There is a sense that buyers are waiting for some positive news to spark them into action; without it they remain happy to wait and see.

“On the supply side our data suggests sellers are a little more motivated than usual. We are seeing properties withdrawn at a slower rate than usual combined with more price reductions. It may be the case that some vendors see the current market as their best chance to secure a sale at a price they are comfortable with. Some may expect conditions to weaken next year as economists forecast higher interest rates for longer and general uncertainty surrounding the run up to a General Election comes into play.

“The prime London lettings market remains difficult to analyse due to the limited sample of properties actually being listed. On the rental demand side, we are seeing longer contracts and tenants swapping within those when they need to move rather than whole properties coming to market.

“With supply, there is little evidence of any mass sell-off from landlords, but a lack of new entrants is steadily reducing the overall stock of what might be considered ‘typical’ buy-to-let properties. This means that the market may find it difficult to return to 2019 levels of available rental homes, particularly for those more affordably priced.”