London house prices 5% below their August peak
- Worst November on record for property sales in London
- Homes in Inner London cost twice as much as national average
- New hope for first time buyers
Lowest sales volume for November
The end of 2023 saw the lowest ever November for sales volume in the region of London. Since records began, London has only recorded fewer sales in a single month on three occasions. Once, in July of 2021; a lull following a mad-dash for buyers to complete before the SDLT holiday ended in June, and for the months of January and February in 2009, following the economic crash.
It is reassuring to know that sales in November were not as bad as they were then, and that they seem to have picked up with some speed in the first quarter of this year, as we expect Land Registry data to confirm as it becomes available.
London house prices nearly £30,000 below their August peak
The housing market peaked across the country in the second half of 2022, with some regions breaching that ceiling again in 2023. London's property market has not been so quick to bounce back however, with the average sold price in January falling £27,333 behind the peak of £545,059.
How does the Bank of England Influence the London property market?
House prices nationwide rose with inflation in 2021 but fell with the base rate hikes in 2023 when the higher cost of borrowing squeezed the budgets of buyers. The base rate levelled out in June 2023 and has stayed at 5.25% for 8 months now, but house prices in London climbed slightly and then fell. If the base rate comes down soon, as expected, people will have more buying power which should feed more healthy growth.
The Bank of England (BoE) is keeping the base rate steady at a higher level to bring inflation down. Uncontrolled inflation means that goods and services (and houses) get increasingly expensive, meaning your pounds are worth less. The bankers planned to bring the base rate down when inflation reaches a healthy level of 2%, but rising unemployment means they may be forced to bring it down before June, although it will be a small rate drop.
The base rate directly affects mortgage rates; lower rates mean cheaper borrowing and cheaper borrowing often means a more active housing market and rising house prices. Read more in our article Should I Fix My Mortgage for 2 or 5 Years?
Will there be a UK recession in 2025?
The Quarterly Economic Forecast (QEF) predicts the UK economy will grow by 1.3% in 2025 and 1.5% in 2026. Source: British Chambers of Commerce (BCC).
This, however, is well below the pre-pandemic average. NEISR estimate that Britain's poorest households will not recover fully until 2027.
Less than half the previous year's property sales across London
Every area of London saw fewer than half as many completed sales as the same month in the previous year. Inner London (at 47% of last year's sales volume) fared slightly better than the average for England and Wales (45%), while the region as a whole (43%) and Outer London in particular (41%) fell behind.
The City of London saw 6 sales for the month, compared with the previous year's 7.
Homes in Inner London cost twice as much as the national average
For anyone who lives in London, it probably comes as no surprise that property in Inner London costs almost twice as much (£586,090) as the average for England & Wales (£293,976). There are various schemes to try and help would-be home owners facing the increasingly unachievable purchase price of their first home.
Good news for renters in London
After an eye-watering 8% average increase on rent last year, Guy Gittins, chief executive at Foxton's expects rents on new tenancies across London to rise on average between 0-2%. To compound this welcome relief, he also reports 20-30% more availability, with fewer applications for each home.
Average London home still costs more than half a million
House prices in the region of London breached the £500,000 mark for the first time in March 2021, again in June of the same year, and then has remained comfortably over £500,000 since August 2021; only falling to £505,075 in the dip at the end of last year. This is largely caused by the greater cost of homes in Inner London, as outer London remains (relatively) affordable.
The average home in the region costs £517,729, according to the latest data from HM Land Registry; this is only 5% below the record high of August last year (£545,059), and economists expect we'll see house prices climbing again soon.
Hope for first time buyers: New 95% mortgage guarantee scheme
The new scheme is planned to run until 30 June 2025 and is available to home movers as well as first time buyers. You'll need a deposit of 5-9% to purchase a (non-new-build) home worth up to £600,000. The 95% mortgages are residential (not for buy-to-let), repayment (not interest-only) mortgages.
The higher the Loan to Value (LTV) ratio, the higher your monthly payments will be, and the greater the risk of falling into negative equity.
Negative equity happens when the value of a property drops and you owe more on the mortgage than the property is worth. This can happen if the house falls into disrepair, or national or local property prices fall by more than 5%. Price growth in the region of London has been below 0 since May last year, which means prices have been falling. However, we hope to see the London housing market climb back into healthy growth by the end of this year.
Detached houses in London fell below £1 million in December
Detached houses in London have an average sold price of £1,034,830 and have sat above the million pound mark since October 2021. However, the recession which affected the country in the final quarter of last year drove the average price of detached homes in London down to £996,187; the lowest price in years.
The mini-bubble which brought a flood of buyers to the market in January quickly lifted prices on all property types once again, and it is likely that detached houses in the region will continue to sell for over £1 million on average.
New homes in London outpace existing property
Following national trends, the price of the average new build home is soaring away from pre-existing property prices. This effect is more subtle in London than in Lancashire, for example, but we can assume this is being led by several factors:
- Higher building costs since Brexit
- A compounding shortfall in the number of homes built (target: 75,000 per year), driving imbalance between supply and demand
- Government incentives to assist buyers with the purchase of new-build homes
- And; I wonder, if there may be a greater proportion of higher-value housing being built versus 'affordable' homes?
What is next for the London housing market?
The London Infrastructure Plan 2050 aims to improve the delivery of London’s infrastructure and to make sure London receives the investment it needs to support housing, quality of life and economic growth:
"We can use major infrastructural projects to kick-start this wider regeneration, helping London to keep its world class position as a creative, high tech hub of talent.
"This means improving public spaces, transport hubs, local places and cultural icons. On a larger scale, this means:
- unlocking growth through investment in regeneration and infrastructure;
- super-fast broadband, with our new Super Connected City Plan;
- regeneration projects surrounding the Crossrail network and new stations;
- greater support for technical and creative industries through the Open Institute."
Growing Places Fund
This fund focuses on areas with a high capacity for growth and supports projects that will lead to new jobs, new homes and better skills training opportunities. Including:
- £31m to deliver a ‘four trains per hour’ service on the West Anglia Line to Northumberland Park, Tottenham Hale and Angel Road Station, unlocking thousands of jobs and homes in the Lea Valley
- £2.5m to deliver improvements to Angel Road Station, unlocking investment and the development of homes in a neighbouring development site called Meridian Water
- £6.8m to deliver key junction improvements and a new development in Southall, thus maximising the benefits from Crossrail
- £250k to support the delivery of Tempus Energy, a new energy suppliers smart energy business model which optimises energy use to increase the utilisation of existing infrastructure, reducing costs and energy bills.
- £8.5m for improvements in Hackney Wick Station to create better connections between iCity, the Olympic Park and Hackney Wick town centre and supporting development of homes and space for business
Super Fast Broadband
The connection voucher scheme enables small and midsize enterprises to claim up to £3,000 to cover the cost of connecting or upgrading to superfast broadband. This means faster broadband for more Londoners and their businesses, to support more jobs in the region.
These infrastructure improvements will support regeneration to grow the London housing market.
Should I buy a house in London?
London is an excellent location for professionals, and is a desirable place to live for many reasons:
- International transport links
- Diversity
- Parks and green spaces
- Art, Music & Culture
- Shops & Restaurants
- History & Landmarks
- Vibrant atmosphere
- Education and employment opportunities
If you can afford to buy now with a fixed rate mortgage, it is likely you'll be able to switch to a more affordable mortgage rate in a couple of years, by which point your investment will hopefully have appreciated in value, as property in Bristol consistently outperforms the national average.
If you are renting and can afford to buy at the current rate of interest, this may be a much more desirable option than saving for a bigger deposit, as rents are set to rise nationally this year by 2% or more in London, where buying a home is more cost effective than renting.
However, if you are stretching your budget to buy in London (even with the help of available schemes) consider a cheaper location if you can, or saving for a bit longer. We may not be out of the woods yet, and if the base rate (and mortgage rates) rise, you may not be able to keep up with your monthly repayments. Worse yet, if prices do fall, you could end up in negative equity. Buying a home with a mortgage always comes with risks.
If you are ready to buy a house in London or the surrounding area, we can handle your purchase with a dedicated SAM Conveyancing Consultant to manage your transaction alongside one of our hand-selected panel solicitors.
"Home buyers return to the housing market en masse in 2024, following a stagnant 2023. They have returned to a property market still facing challenges: rising sales prices, high mortgage rates, and uncertainty about when the base rate will come down."
"The budget brought little joy to the housing market other than incentivising landlords to sell and pay less capital gains tax. In the run-up to a General Election, expect to see more housing pledges from all parties, such as:"
- Achieving 300,000 new homes a year.
- Further relaxing of planning applications.
- Tax cuts.
- Climate change pledges.
"There are clearly a large number of buyers in the market looking to get on the housing ladder or to climb it. We need to see the BOE base rate remain stable at current or lower rates to achieve this. I still expect to see the base rate fall before the summer."
- Andrew Boast FMAAT MIC
CEO and Author | SAM Conveyancing
Sources: Latest data from - Gov.UK, Bank of England, UK House Price Index, ONS, Property Mark (NAEA), and Rightmove.
Caragh is an excellent writer and copy editor of books, news articles and editorials. She has written extensively for SAM for a variety of conveyancing, survey, property law and mortgage-related articles.
Andrew started his career in 2000 working within conveyancing solicitor firms and grew hands-on knowledge of a wide variety of conveyancing challenges and solutions. After helping in excess of 50,000 clients in his career, he uses all this experience within his article writing for SAM, mainstream media and his self published book How to Buy a House Without Killing Anyone.
Without Killing Anyone
This book could be the difference between every mover’s dream, buying and moving into your new home stress free, or, stress, missed deadlines, legal disasters, building defects, and possibly the collapse of the whole transaction. (Costing you a small fortune, a head full of grey hairs, and, driving you to threaten the life of your solicitor, lender, co-owners, family, partner, or some combination of all five).
With more than two decades’ experience in the conveyancing sector and over 50,000 successful client moves under his belt, Andrew shares insider tips and advice to empower you as a buyer, giving you the tools to make the best decisions for your circumstances and ease the chaos.
Available on Amazon | Kindle | Paperback
