Has the sun finally set on London's property market?

Original article written by Rebecca Jones for iNews (14/01/2019)

House prices in the capital have been the runaway financial success story of the past ten years. Since October 2008, ONS and Land Registry data shows the average price of a home in the capital has risen from £266,999 to £472,609: growth of nearly 80% that includes the tumult of the 2009 crash.


In contrast, the average price of a home in the North East - the UK's most economically deprived region - has grown by just 3.2% over the same period: from £124,448 to £128,488, reflecting a grossly imbalanced economy that has favoured the Square Mile above all else.


There are signs, however that the sun may finally be setting on London's property boom, with the latest Nationwide index showing prices in the capital falling for two consecutive years - down 0.8% in 2018 after a 0.5% slide in 2017.


Estate agent Homes and Property says this is the first time this has happened since the early 1990's, when London witnessed a devastating property crash from which house prices didn't recover for nearly a decade.


According to data from London Central Portfolio (LCP0, annual transactions have also fallen drastically, last year standing at just 3,703 in Prime Central London - the hotbed of mega price growth since 2008 - which is 15% down on 2017 and 45% down since 2014. In Greater London, the main domestic market, they are down by 4.1% on the year and 26% since 2016.


Brexit and taxes: the only certainties

A major factor behind the latest decline is, of course, Brexit. Since June 2016 when the UK voted to leave the European Union, the economic uncertainty that has rocked every corner of the UK has sent national price growth plummeting: from 8.2% a year to just 2.7% in October.


Prices in the capital, however, have been hit hardest by a raft of tax changes since 2012, including increases in stamp duty for more expensive properties, the abolition of tax breaks for foreign buyers and the introduction of 3% additional stamp duty on second homes in 2016.


These changes have effectively stopped London house prices in their tracks, with the rate of growth nose diving from around 20% a year for both inner and outer London in August 2014, to declines of -2.9% and -0.2% respectively in October (according to ONS, which differs from Nationwide).


Naomi Heaton, chief executive of LCP, comments: "The then-Chancellor George Osborne had good intentions with his changes to stamp duty, namely trying to reduce the tax burden for the many by increasing it for wealthy buyers stop excessive foreign direct investment into London property.


However, the changes have hammered all corners of London property, leading to huge loss for the Treasury: stamp duty revenues were down £685m in the first 9 months of last year compared to 2017."


No-one left to buy

As well as higher taxes, affordability has also become a major issue in the capital. The average house price is now 16 times the average UK salary of £29,588, putting home ownership far out of reach of the average Londoner.


And that's if you believe the Land Registry/ONS stats. According to both LCP and Rightmove, the average London house price is closer to £650,000. This is because the latter two include fresh new builds, which are typically prices at 15 - 20% above market value.


New builds are of particular concern to Heaton, who says the Help to Buy Scheme has forced many first time buyers in the capital into these inflated properties that tend to be the first to see prices crash when a downturn comes. On the likelihood of the latter, she is in little doubt.


She says: "Currently, prime central London property is down by around 20%, and even more if you're buying in US dollars, so international buyers are really just waiting for some certainty over Brexit before coming in to snap up some bargains.


In the wider domestic market, however, there is more bloodshed to come. In periods of economic uncertainty, prices in the domestic market tend to fall slower than inner London, but they fall harder, and they take longer to recover. If I were looking to buy a property in the domestic market, I would wait."


Rent to live

Finally, there are those that argue that London's famous generation rent is - in fact - quite happy about it; that the trend away from ownership in areas such as motoring, entertainment and even clothing among younger people is now establishing itself in property.


Harry Downes, founder of landlord Fizzy Living, comments: "Historically home ownership has been the most important thing, but the younger generation is different. They don't want to be tied down by a mortgage, and in fact they can't be. The average worker can now expect to have to change jobs five times in their career and a mortgage is a huge stress in that situation."


|in stead of more ownership, Downes argues that the London property market needs to become as friendly to renters as his firm is, which has dedicated property managers called "Bob" in each building, allows pets, are all five minutes walk from a tube station, and which go for market rates.


UNCLE, founded by Canadian expat Ryan Prince, similarly manages a selection of properties across the capital that give residents access to a 24/7 gym, yoga studio and co-working space while repairs are guaranteed within 48 hours, or else tenants get a rent rebate.


Prince says: "It is incredible that in London there is no large-scale, institutionalised and professionally managed rental sector. It's that which needs to change, and we have a long way to go. At this point a huge boom in home ownership in London is unlikely, even if prices crash dramatically."

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