Recovery across the prime markets is likely to take longer than previously expected
Owners and buyers of prime property have faced their fair share of challenges recently. Prices have been more affected than the mainstream markets as a higher inflationary environment has been compounded by political change, tax uncertainty and heightened price sensitivity at the top end of the market.
But while short-term price movements often grab the headlines, a medium- or long-term view is more relevant for prospective buyers.
Recovery across the prime markets is likely to take longer than previously expected. Higher borrowing costs, political uncertainty and weaker household wealth generation mean price sensitivity will persist into 2027.
But the effects will not be uniform. Prime central London continues to face its own distinct challenges, while mortgage rates will play a greater role in shaping the performance of outer prime London and the regions.
Beyond next year, lower mortgage rates and a relatively robust economic outlook provide the foundations for recovery after a prolonged period of limited price growth.
There are of course some circumstances that would see a faster recovery. A more hospitable approach to the taxation of wealth, the possibility of an earlier-than-expected general election, a quicker-than-expected fall in interest rates and stronger economic growth, all have the potential to change the dynamic.
Prime central London: more of the same?
The underlying tax environment, weaker sentiment and geopolitical uncertainty have been driving price falls across central London. This is expected to continue into next year, before conditions begin to improve.
The conflict in the Middle East and how long it lasts is a key influence for what happens to confidence in the near term. But values remain significantly below previous highs and buyer interest is piqued when pricing reflects prevailing market conditions.
Value relative to its international peers will therefore become a progressively stronger factor in central London’s appeal, although it will take time to overcome the immediate tax and political headwinds.
Wider buyer pool allows for longer-term growth
London’s well-known status as a hub for business, culture, education and wealth will continue to underpin demand from motivated domestic and international buyers. A larger base of prospective demand is also likely to come from greater global wealth generation.
While challenging conditions are expected to remain, an improving economic outlook and market sentiment over the medium term will lead to a gradual recovery in values. But higher costs, particularly stamp duty, mean this recovery is unlikely to become firmly established before 2029 as buyers increasingly take a longer-term view of ownership. In the meantime, buyers will continue to favour the highest quality properties, with the gap between best-in-class and secondary stock continuing to widen.
Outer prime London: short-term pain, long-term gain
Across outer prime London, inflationary pressures and elevated mortgage rates will continue to drive weaker sentiment. While buyers are more reliant on mortgage finance than in prime central London, loan-to-value ratios are generally lower than in the wider mainstream London market.
A lack of stock for the right homes, particularly family houses, also limits the risk of further price falls in the short term.
So while prices are expected to continue falling next year, they will do so at a slightly slower pace than we have seen in 2026. Outer prime London also held up more strongly than mainstream London during the most recent period of elevated mortgage rates in 2023.
Top end price sensitivity
Uncertainty surrounding the new High Value Council Tax Surcharge has led to additional price sensitivity at the top end of the market as some buyers adjust their budgets. This is particularly evident in boroughs where proposals to increase current Council Tax rates have also been announced.
Needs-based moves will continue to support a base level of transactional demand until 2028, when lower mortgage rates and an improvement in the wider economy will begin to release broader pent-up demand.
Towards the end of the period, outer London will also benefit from renewed wealth flows out of central London, allowing for a more sustained recovery in values.
Prime regional: a bump in the road
Higher borrowing costs will create an increasingly varied pattern of performance across the prime regional markets. Much as in London, the new High Value Council Tax Surcharge, political uncertainty and the potential knock-on impact on wealth generation have also impacted sentiment beyond the capital.
But these influences won’t completely override people’s motivations to move, as has been evidenced during the past year. This means price falls are expected to continue during 2027, but they will ease slightly compared to this year.
Greater variation by location
London’s suburbs and commuter zone are more exposed to elevated borrowing costs. These markets, which will also see weaker wealth flows from London, are expected to see the most significant price falls next year, before moderate price growth returns in 2028.
Relatively lower values and fewer mortgaged buyers in the Midlands and North of England, Scotland and Wales means we expect next year’s price falls to be more moderate and five-year growth to be stronger.
Scotland, where two new council tax bands for properties above £1 million will be introduced from 2028, is the only prime market where values are forecast to remain flat in 2027, having weathered both recent downturns better than other prime markets. This outperformance is expected to continue over the next five years as demand remains strong against a backdrop of constrained supply, particularly in urban markets.
Second home markets have also faced higher stamp duty costs and less demand from cautious discretionary buyers. But a delayed recovery is also likely to feed through to these markets in due course, particularly given the price falls already seen.
So while the prime markets may be down for now, they are certainly not out. Lower mortgage rates, an improving economic outlook and market sentiment will lead to a gradual recovery in values over the longer term.
Note: These forecasts apply to average values in the second-hand market. New build values may not move at the same rate
Read the other articles within our Residential Forecasts 2027–2031 below
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