Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

London house price plunge drags down national property market

Kate Hughes
Money Editor
Friday 22 March 2019 14:29 GMT
Between December and January, buyers in the capital saved £1,344 on average
Between December and January, buyers in the capital saved £1,344 on average (Getty/iStock)

Even last week, the usual talking heads in the property world were still commenting on the remarkable resilience of the market in the face of political and economic confusion.

Estate agents continued, outwardly at least, to put their absolute faith in the commitment of the British public to home ownership. Only last week, chancellor Philip Hammond announced a step up in the nation’s house building plans to solve the chronic lack of supply.

This week, there’s little sign of that bluster. Most have broken ranks and the posturing has been replaced by a new realism – after the latest figures showed a determined slide in the nation’s property values, made slipperier in no small way by struggles in the capital.

The Office for National Statistics (ONS) data showed average house prices in the UK increased by only 1.7 per cent in the year to January 2019, down from 2.2 per cent in December 2018. That’s the lowest annual rate since June 2013, when it was 1.5 per cent.

In other words, there’s simply no doubt we’re in the middle of a slowdown in house price growth.

And this is largely due to the south and east of England – property values in London fell by 1.6 per cent in the year to January. That means prices are now dropping twice as fast as they were in the year to December.

“The market is plumbing near six-year lows and Londoners are feeling the worst of it with the gap between house price growth and inflation widening to more than 3 per cent,” says Ewen Bunting, of independent estate agent James Pendleton.

“This represents a substantial real terms annual loss. No one was expecting fireworks after new year while the clock runs down on Brexit but things appear to be coming to a head rather earlier than we had initially expected.”

Clearly, if you’re a homeowner in the south or east of England, the obvious solution is to sit tight. But what about those teetering on the edge of ownership, spurred on by the nagging conviction that being on the ladder is the ultimate aim?

“For the millions of aspiring homeowners that have long been priced out of London, now marks a time of opportunity. Between December and January, buyers saved £1,344 on average when purchasing a property in the capital,” says Shaun Church, director at London-based mortgage broker Private Finance.

“While not a windfall, this saving on purchase price combined with stamp duty exemptions, near record low mortgage rates and government initiatives such as Help to Buy, are all helping to make homeownership incrementally more affordable and attainable.”

The truth is that London prices would need to fall by far more than a percentage point or two to fall within touching distance for millions of the city’s residents.

While the average nationwide price is now £228,000, in London the figure is still more than double that, at £472,000. The average salary in the capital is around £35,000.

Elsewhere though, the story is still playing out a little differently.

In the midlands, for example, house prices are growing by around 4 per cent a year. In Northern Ireland, prices are increasing at 5.5 per cent annually, though it remains the cheapest country in the UK to buy into, with average prices of £137,000.

Thanks to low, unwavering interest rates, stable inflation levels and wages now rising significantly faster than prices, it would seem that buying property miles from where you live is the best use of your cash.

But that would mean delving into the life of a landlord, and right now that may not be the best place to be.

Recent legal tinkering will mean £2bn in extra tax receipts is raised from private rental prices over the next five years.

“After filing their 2017-18 tax returns at the end of January, landlords will be more aware that ongoing changes to mortgage interest tax relief are increasing the financial challenges facing them,” says Kate Davies, executive director of the Intermediary Mortgage Lenders Association.

“The pressure to increase rental prices is likely to be mounting.

“The chancellor’s Spring Statement featured a number of announcements regarding initiatives to increase housing supply for new homeowners – but was silent in respect of the government’s strategy in relation to the private rented sector.

“The previous chancellor’s policy, of seeking to recalibrate the balance between the private rental sector and owner-occupation, has stymied rental property investment growth, a trend which is likely to persist through 2019.

“Supporting landlords should go hand in hand with helping people get on the property ladder. Forcing landlords to increase rents in order to make ends meet ultimately has a detrimental effect on renters’ ability to save for deposits to buy their own homes.”

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies


Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in