Recent statistics provided by the government suggest that, nationally, property values rose by 1.3% this year up until August whilst London house prices dropped 1.4% over the same period.
On a more regional basis, the North East, North West and South West had house price gains of around 3% and the South East fell by 0.6%.
Whilst these statistics are useful and the directions are generally correct, they bear little correlation to what is actually happening in the market in terms of actual losses or gains.
Over this year in London, we have seen asking prices and agreed prices some 5-10% lower than last year which again follows falls the year before. As is fairly well documented, the upper tiers of the London market have now fallen by some 20% since their peaks in 2015. The Lonres charts that we have provided in our reports are some of the more accurate assessments of what has happened in the market.
From our discussions with agents the market is, at present, fairly regional around London with Central London areas still suffering from a significant fall off in demand and activity, whilst it is reported that the market in outer London areas, such as Hackney, is reasonably stable. This is a reflection that the outer areas of London have seen far less inflation after the financial crisis whereas Central London has seen significant inflation, particularly at the upper tiers of the market with all these gains having now generally been lost.
We do appear to be crawling towards some sort of Brexit agreement which will give reassurance to overseas buyers who have very much been waiting to see the outcome of the deal prior to commitment. There is therefore considerable pent-up demand both from overseas investors as well as UK buyers who have also been sitting on their hands. That said, we did see a slight spike in activity in the months from April to August this year from those buyers who could not wait any longer after the March decision to delay Brexit.
We would therefore expect that if there is some form of resolution of Brexit this month, there could be upward pressure on pricing at the upper tiers of the market (above £2,000,000) as buyers take advantage of the considerable reduction in prices over the last few years, as well as overseas buyers taking advantage of the weakening pound. We should finally see an arrest in the falls and, most likely, see increases in prices over the next year.
The cost of one and two bed flats in London’s prime areas still being relatively high continues to be of concern. This is particularly relating to flat conversions which are not of interest to most overseas buyers (who prefer new build) and where the affordability equation rules out most UK purchasers. With the lack of Buy to Let investors in this sector of the market further possible falls in this lower price bracket cannot be ruled out.
This will also apply outside prime Central London where we have relatively high priced one and two bed flats which, whilst built for a first time buyer, bear little relation to their income in that sector of the market. The effect of George Osborne’s taxes on the Buy to Let market has seen demand in this sector dwindle and prices continue to decrease.
New build property in London has also seen some marked price corrections and this is the primary area where overseas buyers, particularly from the Far and Middle East, are likely to purchase after Brexit. Whilst there is still significant supply across multiple areas of London, we can see the global demand finally washing through some of the more distressed assets in these large developments resulting, at the very least, in a stabilisation in pricing.