The number of exchanges in prime London markets in November 2022 was 16.2% higher than the same month in 2021 and 15% higher than the five-year average, according to Knight Frank analysis.

However, the number of offers made in the month was 16% below the five-year average, reflecting the uncertainty that has arisen from the recent spike in borrowing costs.

The number of offers accepted was 22.2% above the five-year average. Nervousness among prospective buyers, therefore, does not mean sales volumes are about to fall meaningfully, said Tom Bill, head of UK residential research at Knight Frank.

Average prices were flat in both prime central London and prime outer London in December, taking annual growth to 1.5% and 4.4%, respectively.

Meanwhile, the number of new prospective tenants in prime London postcodes was 26.7% above the five-year average in November 2022. Consequently, average rental values in prime central London ended the year 17.8% higher year on year, and 23.2% above their pre-pandemic average. In prime outer London, the annual rise in December was 15.8%, meaning rents were 21.1% above their level in March 2020.

While prospective tenants have been operating in a highly competitive prime London market, Bill observed that there are some signs that supply is improving in higher-value markets as owners tend to be “more discretionary” with their options. “It could even be a sign of things to come for the rest of the market in 2023,” Bill said.

He added: “By the time the spring selling season gets underway next year, mortgage rates will be at least two percentage points higher than they were this spring as rates normalise in response to double-digit inflation. It will force a great recalculation on the part of buyers and sellers around what they can afford and what they are prepared to sell for. We expect it will drive prices 10% lower over the next two years, reversing half the growth that took place during the pandemic.

“Some owners will accept lower prices while others will decide to let out their property instead, even in the short to medium term. The recent history of strong double-digit rental value growth will be an added attraction for these so-called ‘accidental landlords’.”

Bill concludes that, three years after the pandemic first struck, the UK property market “may finally begin the process of self-correction next spring, potentially providing some relief to tenants”.