London property prices will rise by 6% next year despite the economic turmoil

What is the cost of living crisis? London real estate prices are expected to rise by 6% next year, making it the third largest after Los Angeles and Miami

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

Prime London real estate is expected to see price growth of 6 per cent next year – the third highest globally – despite an increasingly volatile economic backdrop.

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

Madrid comes in fourth place with a growth rate of 6 percent expected for 2023, followed by Seoul at 5 percent.

Knight Frank said prices for London’s most expensive homes could rise by 6% next year

Knight Frank said in its Global Headline Outlook that the London market was helped by strong demand from local buyers.

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

However, the real estate expert warned that inflation risks will be more persistent in the UK and the Eurozone, making it among the countries that cut mortgage interest rates.

She added that in 2023 and 2024, this could weaken or reverse the currency advantage currently enjoyed by those buying homes in the UK in US dollars.

Only Vancouver and Melbourne are expected to see lower prime property price growth next year despite the uncertain global economic outlook.

Only Vancouver and Melbourne are expected to see lower prime property price growth next year despite the uncertain global economic outlook.

Worldwide, the company expects subdued price growth in 2023, averaging 2.8 percent across all 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, the report said, a strong job market, rising incomes, increased equity in prime homes accumulated during the pandemic and — for those with mortgages — a higher flat rate ratio, will mitigate the impact of the slowdown.

Growth forecasts for 2022 are getting lower

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

Despite this decline, projected growth for the year still exceeds that seen in nine out of the past ten years.

London is one of those that has taken a hit. Knight Frank cut its forecast for 2022 from about 7 percent in December 2021 to 4 percent as of June this year. In contrast, Edinburgh saw one of the largest upward revisions as forecast price growth for the year jumped from 5 to 8 per cent.

London is expected to see overall prime real estate growth of 4% this year, down from Knight Frank's previous forecast of 7% - although things should pick up in 2023.

London is expected to see overall prime real estate growth of 4% this year, down from Knight Frank’s previous forecast of 7% – although things should pick up in 2023.

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

With the average property cost now at £551,777, the standard median home price already continues to rise, up by £40,361 over the past year.

Although the prime residential market segment has a higher percentage of cash buyers and can therefore be considered less exposed to higher mortgage rates, tighter monetary policy and higher interest rates around the world are inevitably affecting prime markets as well.

Despite this, both Miami and Dubai are expected to see double-digit increases in prime real estate prices of 12 percent through 2022 – although the figure is still a slowdown compared to last year.

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Mortgage rates skyrocketed as the Bank of England’s base rate rose rapidly.

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