In recent years, London’s housing market has been affected by uncertainty first sparked by the Brexit referendum.
Additionally, sellers in London have been very realistic about the pricing of their homes recently. This is shown by above-average asking price adjustments since the last quarter of 2022.
These trends are now translating into annual house price falls. Our House Price Index for May 2023 shows that London’s house prices have fallen 0.2% over the last year.
Property sales in the London housing market among the highest in UK
What’s surprising is the volume of property sales agreed in London despite lower buyer demand and falling house prices this spring.
Over the last 4 weeks, there were 15% more house sales in London than during the previous 5 years.
This is the second-highest level of property sales in the country, showing the London housing market to be maintaining momentum.
This is very different from other UK housing markets where house prices grew at a much faster rate over recent years.
Higher prices, combined with the hit to buying power from higher mortgage rates, have taken more buyers out of the market across the rest of the country.
Why are there so many homes selling in London?
The London housing market is complex, with many factors influencing sales.
Low house price growth in London in recent years has positively impacted affordability.
As a result, London offers better value for would-be buyers, especially those interested in buying flats - for which prices remain unchanged since 2016.
With its strong finance and service sectors, London remains the region with the highest economic output in the UK.
This translates into healthy wage growth which has outpaced house price inflation over recent years. While house prices in London grew by less than 11% during the last 7 years, the average wage in London increased by 19% within the same timeframe.
This means that someone on an average salary in London will now spend a lower proportion of their income on buying a house than in 2016.
Besides this, London remains a global city which continues to attract many immigrants and international investors. As such, increased migration into the UK and favourable sterling exchange rates are likely to support housing market activity in London.
Offers flow into Inner London housing markets
From the start of 2020, we saw higher levels of interest in homes in outer London. Our latest House Price Index shows that this trend has now reversed in May 2023.
During the last 4 weeks, we observed some of the highest market activity rates in inner London.
The number of agreed property sales in the West London (W), South West (SW) and East (E) London postcodes are 21% to 33% higher when compared to the same period over the last 5 years.
The majority of housing stock in these areas are flats or apartments. Prices of flats have hardly increased over recent years, making them an attractive option for buyers seeking value for money.
Some of the areas with the highest sales numbers have also benefited from the opening of the Elizabeth Line in 2022, which has increased connectivity with central London.
Fewer property transactions in cheaper parts of London
In spring 2023, we are seeing fewer offers for homes listed for sale in Enfield (EN), Croydon (CR) and Southall (UB). These areas represent 3 out of the 4 cheapest areas to buy a house in London, despite them seeing some of the highest house price growth over the last 5 years.
Suburban appeal and competitive pricing made these areas very popular during the pandemic. Resulting house price increases had a negative impact on affordability in these neighbourhoods, which is now hitting demand as buyers become more value-conscious.
What’s next for the London housing market?
A healthy volume of agreed property sales in London in spring 2023 shows there is meaningful interest among buyers. Mortgage rates between 4-4.5% remain manageable for new homebuyers which is driving interest in well-priced homes.
If mortgage rates edge higher, the greater the effect on buying power and the more pressure on house prices. To keep the momentum in the London housing market, both buyers and sellers will need to be realistic when it comes to pricing and offers.
But as long as the labour market remains strong, we expect only modest house price falls in London in the second half of 2023.