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London House Price Crash

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London House Price Crash

London House Price Crash

Is the Bubble about to burst for the capital of the United Kingdom? London House prices rose by a measly 1% in February, which is the worst growth the market has seen since 2011. Although this is better than the 4.2% drop in January 2018 this still isnt going in the right direction enough. Out of 46 local authorities in London, 15 of them are pulling the prices down for the nation’s capital. Large parts of London have seen prices drop so much so that around 42% of London has seen a decline.

Reading an interview with Richard Donnell, insight director at Hometrack.

‘We expect the balance of markets registering price falls to increase over 2018 as prices continue to adjust to what buyers are prepared to pay.

In London, house prices continued to increase in 58 percent of postcodes, but this proportion has shrunk over the past two years and if the current trend continues, the rate of headline growth in the capital is set to turn negative from mid-2018.

The weakness in London’s housing market has been building since 2015 on the back of numerous tax changes aimed at overseas and UK investors and growing affordability pressures facing homeowners.

‘Sales volumes are first to be hit when demand weakens and housing turnover across London is down 17 percent since 2014. Sales prices are next to follow but with few forced sellers, the level of price falls remains low.’

The slowdown in the capital is mainly driven by price falls across inner London postcodes, with 15 of the 46 local authorities that make up the London index, or 42 percent, experiencing price a fall in market prices.

Hometrack said this was the highest proportion since the financial crisis.

The biggest price falls in London were in the City of London, where prices fell 7.9 percent, followed by Camden, where prices fell 1.9 percent in the year to February, Southwark, with prices down 1.8 percent and Islington, where prices dropped 1.4 percent.

But in spite of the slowdown, average London house prices are still up a whopping 86 percent compared to 2009 levels, Hometrack said.

‘Away from southern England house price growth remains robust in regional cities where prices have registered lower overall growth since 2009 and affordability levels are in line with their long-run average,’ Donnell added.

So what did this bubble start? For two decades, the market has been characterized by turbo-growth. The average house price rocketed nearly 500% from £98,000 in January 1998 to £485,000 in January 2018, compared to the £227,000 average across the rest of the UK.

So what are the main factors causing this slowdown and ultimately what is beginning to look like a slump?

1. Mortgage problems

“There are two things that are going to fundamentally shape the UK market over the course of the next ten years: Mortgage regulation and interest rates,” Lucian Cook speaking to ‘The Business Insider’.

Back in 2014, the Bank of England introduced rules which ensured banks could only make 15% of mortgages on their books more than 4.5 times the borrower’s salary. This was the start of the bad news for those in London, where the affordability gap between salaries and house prices is at its biggest. The Office for National Statistics says that 7 of the 10 least affordable local authorities are in located in the capital, which makes it hard to get onto the latter.

“Mortgage regulation is designed that people don’t overstretch themselves. But what it does is cap the amount people can borrow relative to their income, and that keeps deposits high for first-time buyers and for home-movers generally,” Luciano Cook said, read more of the article here.

2. Brexit uncertainty

Mortgage issues combined with Brexit-related uncertainty is a terrible mix of house prices, especially in London. Negative sentiment around BrExit appears to be stalling some sellers from moving house and that, in turn, is hitting demand and driving down transaction volumes, meaning the number of houses being bought as well as sold.

“London’s housing market has been pushing up against the limits of mortgage regulation and affordability for some time,” Savills research analyst Lawrence Bowles said last year. “The Brexit vote was the tipping point that slowed price growth.”

“Greater economic and political certainty should trigger a return to growth in 2020, though this will be capped by borrowing constraints as gradual increases in the cost of mortgage debt impinge on affordability.” Read more here.

3. Bloated prices at the top of the market

It seems that the most expensive areas of London are being hit the hardest, where a £1 million property counts as a bargain and affordability is the most stretched. The top 11 of London’s 33 boroughs are down an average 7% annually, according to Acadata.

Kensington & Chelsea still remains the most expensive place to live, with an eye-watering average price of £1,805,000, but prices have fallen sharply there by a massive 12.9% in the last year — more than £200,000. Prices in Camden fell 10.8%, the City of London by 18.2%, and in Wandsworth by 12.7%.

The 11 cheapest boroughs have seen a modest fall of 1.3% over the year overall, so it seems a safe bet to buy at the lower end of the market.

If you would like to share your thoughts and experiences on the London market then please drop us a line on 0800 612 1366.

If you are struggling to sell your house in London call us today for a no-obligation offer on 0800 612 1366.

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