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The lure of city living means the prices of prime properties in urban housing markets are now rising more quickly than top-end homes in surrounding rural areas, according to an estate agent services company.
It said that following the “race for space” seen since the start of the coronavirus pandemic, as buyers snapped up homes in countryside and coastal locations, the distribution of house price growth is starting to change, with a rebalancing of the housing market also being seen as employees return to offices.
Savills’ report specifically looked at prime properties, which are roughly the top 5% of homes by house price.
It found that annual price growth in well-connected urban markets was 7.0%, compared with 6.7% in surrounding areas.
The slowdown is driven by lower levels of price growth in markets which saw the highest level of buyer demand over the course of the pandemic, rather than price falls
Frances McDonald, Savills
Frances McDonald, research analyst at Savills, said: “Following two years of unprecedented growth in the UK’s prime regional markets, the market has started to readjust and price growth is softening.
“However, the slowdown is driven by lower levels of price growth in markets which saw the highest level of buyer demand over the course of the pandemic, rather than price falls.
“The lure of urban living is also becoming more popular with downsizers – who recognise the opportunity to sell into a market where demand hugely exceeds supply, and are keen to trade in country pads in exchange for properties in cities such as York, Bristol or Winchester.
“As a result, we can expect to see regional urban markets perform more strongly over the second half of the year.”
Savills said there are also early signs that demand has softened among discretionary buyers in the prime coastal housing markets, although prices in these markets are still up by 8.7% annually.
Lack of stock remains an issue and is continuing to prop up prices in some locations, Savills added.
Ms McDonald added: “Growing concern for the country’s economic outlook has seen the gap between seller expectations and buyer budgets narrow – and they are now more aligned on price point. Demand is still strong, but buyers are acting with caution and are less willing to bid over the asking price to secure the right property.
“How much buyer budgets will shift over the remainder of the year will largely depend on how far the Bank of England decides to increase interest rates.
“This will have a more significant impact on markets which typically take on more debt – such as the South and the Home Counties – and as a result, we may see a further slowdown in growth towards the back end of this year.”