Savills cuts London forecasts as southern property markets face correction

Savills has substantially downgraded its property price forecasts for London and southern England, warning that affordability pressures and elevated mortgage rates will drive "modest price falls" across the capital and Home Counties over the next 12 months. The agency's revised outlook marks a significant shift from its previous predictions, with London now expected to see prices decline by 2-3% through 2024, whilst northern markets including Manchester, Leeds, and Liverpool maintain resilience with flat to modest growth trajectories.

The forecast revision reflects mounting evidence that the UK property market is bifurcating along regional lines, with southern England bearing the brunt of affordability constraints that have reached breaking point. Average house prices in London now stand at 13.2 times median earnings, compared to 7.8 times in Manchester and 6.9 times in Liverpool, creating fundamentally different market dynamics. Savills' analysis indicates that with mortgage rates stabilising around 5.5-6%, the southern premium has become unsustainable for many buyers, forcing a price correction that northern markets can avoid due to their more reasonable entry points.

For buy-to-let investors, this regional divergence presents both opportunity and risk. London landlords face the prospect of capital depreciation alongside already compressed yields averaging 3.8%, whilst northern cities offer superior rental returns of 5.2-6.4% with greater price stability. Birmingham and Newcastle emerge as particularly attractive markets, where Savills anticipates rental growth of 4-5% annually will outpace any modest price adjustments. The firm's data suggests that investors with southern portfolios should consider rebalancing towards northern assets to maintain portfolio performance through the correction phase.

Commercial property markets face similar regional pressures, though with distinct sectoral variations. London's office market continues to grapple with post-pandemic demand uncertainty, whilst industrial and logistics assets across the Midlands corridor remain robust. Savills projects that prime London office values will decline by 5-7% as occupier demand stabilises at permanently reduced levels, but warehousing assets in Birmingham, Manchester, and the M1 corridor will see continued appreciation driven by e-commerce logistics requirements.

The implications for first-time buyers vary dramatically by geography and timing strategy. In London and Surrey, Savills' forecast suggests that waiting 12-18 months could yield meaningful savings, with a £600,000 property potentially available for £570,000-£580,000 by mid-2025. However, northern markets offer limited scope for such timing benefits, and buyers in Manchester or Leeds may find that rental costs exceed any potential purchase price reductions while they wait.

Development finance will inevitably tighten further in response to these projections, particularly for southern schemes where profit margins face compression from both higher build costs and lower exit values. Savills estimates that development viability in London requires 15-20% higher sales prices than current market conditions can support, suggesting a significant slowdown in new supply that will ultimately support medium-term price recovery. Northern developments remain more viable, though developers will need to adjust pace and pricing strategies to match local market absorption rates.

This market recalibration represents a necessary correction rather than a systemic crisis, with Savills' analysis pointing towards a healthier, more sustainable pricing structure by 2026. The agency's forecast anticipates that London prices will resume modest growth from 2025 onwards, supported by restricted new supply and underlying demographic demand. For sophisticated investors, the coming 18 months will present selective opportunities to acquire quality assets at adjusted valuations, particularly in markets where fundamentals remain sound despite temporary price weakness.