Each year, the Knight Frank Wealth Report unveils where wealth is being created and how it is influencing property markets. The report includes a survey of 500 private bankers, wealth advisors and family offices, and another in which researchers canvassed 500 high net worth individuals.

Many of the results are surprising. Across Europe, the level of aggregate wealth held by ultra-high-net-worth individuals UHNWIs fell 17.3% during a turbulent 2022, yet three in four expect to grow their wealth this year. Some 15% plan to purchase a home.

There is a lot in there for watchers of property and debt markets.

We've condensed it into just five key takeaways that we feel will most shape the mortgage market during the year ahead.

Sun and Ski markets outperformed, with annual price growth of 8.4% and 8.3% respectively. Resort markets in France are well placed in the rankings, led by Paris, Val D’Isere and Chamonix. The pandemic unshackled people from the big cities and the trend shows few signs of easing.

We expect that demand to buy in France will remain resilient, however accessing finance can be a complex process. Banking regulations in France aren’t generally well suited to periods of heavy volatility, which can weigh on liquidity. Workarounds exist, including purchasing through a company, but speak to an expert from Knight Frank Finance before you buy.

Many of the wealthy are investing to offset the impact of economic volatility. Almost a third of investors say they will look to property investments to provide an inflation hedge and diversification, yet higher interest rates will weigh on demand for debt. Almost a third of investors say they will look to cut debt volumes during 2023. Reduced demand may slow the pace of rising rates as lenders compete for market share, particularly for customers with long-established relationships with a lender.

Institutions reduced real estate investment by 28% in 2022. Private capital was far less defensive, falling only 8% and accounting for a record 41% of the US$1.1 trillion committed by all investors. Private investors without cumbersome board approval processes will continue to thrive in 2023, capitalising on a thinner field of competitors.

The ongoing passion for luxury collectibles pushed the Knight Frank Luxury Investment Index (KFLII) 16% higher in 2022. Art (up 29%) and classic cars (25%) led the table, propelled by record-breaking sales and some huge and unique collections coming to the markets. Lenders want a piece of the action, and the market for borrowing against luxury investments is expanding rapidly. While historically, banks have been happy to lend against art, wines, whiskeys are a host of other collectibles can now be used as collateral for investors seeking to boost their liquidity.

Finally, almost half of the high-net-worth individuals surveyed said their primary reason for seeking another property was for investment purposes. Indeed, the allure of property as an income stream and for the potential of capital value growth has remained resilient in the face of rising interest rates. Debt is a crucial part of the picture, boosting returns in a world in which they are harder to come by.

If you would like to discuss how the current market conditions may impact your property plans, or those of a client, please contact us at mortgages@knightfrankfinance.com