Fears of a property price crash have become more apparent in recent times. Inflation is higher than predicted and banks have raised interest rates further than expected, causing mortgage rates to now rise above 6% for five year fixed rate products. For many Londoners who may be exiting their current mortgage terms this year, the timing of these interest rate rises could force them into financial trouble. Furthermore, it’s expected that mortgage rates could rise above 7% in just a couple of months time.
Property prices started off strong at the beginning of the year but have since taken a negative turn with an average trend of declining house prices. For Londoners the threat of a house price crash could be bigger than in other regions of The UK. London properties have the highest average price in the country and as the saying goes, “the bigger they are the harder they fall”. If declines are to be measured in percentage terms then when converted into cash figures Londoners seem to have the most to lose. How much will prices fall and is London still as robust as it used to be? Are important questions that are on the mind of London property owners.
A Large Population Facing an Affordability crisis
On the plus side, most of the property to be built in and around London has already been built and it’s fair to say that there is very little land left for development. On the other hand many large properties can still be repurposed into flats but there is still a limit to the amount of property that can be repurposed in this way. In the event of a property crash one possible saving grace for London is that there is undoubtedly a large demand for home ownership due to the need of the population. However, Londoners face the largest disparity between income and house prices so it is thought that house prices will have to fall further in London to realistically meet the income of buyers.
It Currently Takes a Long Time to Sell a London Property
London used to be one of the fastest places to sell a property with many buyers scrambling to make offers when a property came onto the market. Nowadays, London is one of the slowest places to sell a home.
Direct House Buyer reports how long it takes to sell a home for different regions on a monthly basis. Before the pandemic they reported that London was one of the fastest regions to sell a home but since the pandemic it has now become one of the slowest, currently taking an average 64 days to sell a house, which is just behind Wales the slowest region taking 65 days. It’s surprising that a region like London with such a large population and housing demand can take just as long to sell a house as Wales which is a more rural region with less demand. This may be a sign that Londoners are out priced and can’t afford to buy a house and instead are needing to rent.
Higher Valued Homes are Less Affected
London has more cash buyers than any other region due to many homeowners already being equity rich from the property boom that London has seen over the past 20 years. It seems that the wealthy who don’t need to borrow have been buying up the higher valued London properties and according to The FT, homes worth more than $5m have held a stable price in the past year whereby those worth £1m – £500,000 have fallen 2%. Properties under £500,000, where buyers are more likely to require a mortgage, have fallen 2.5%. The higher value properties around London may end up less affected by a price crash than the lower value properties such as first time buyer homes where buyers are not equity rich and will likely require a mortgage.
Landlords Are Selling Up
Due to the unaffordability of home-ownership for Londoners there is more demand for rental properties than other regions. It has been reported that London is now facing the biggest shortage of rental properties in the country. It’s not just the increased demand for rental properties causing this shortage there are less London rental properties being listed with a reported fall of 41% since the pandemic. In comparison, the rest of the UK is seeing 33% less rental properties being listed. For Londoners where there is a higher demand, also from local councils, there is a possible rental supply crisis on the horizon. This has partly been fuelled by landlords taking the decision to sell up for a number of reasons.
Reasons Why Landlords Are Selling
- There is the fear that house prices will fall further and landlords are wishing to cash in and get their equity out.
- Mortgage terms may be coming to an end and Landlords will be facing far higher mortgage rates.
- Property investment isn’t as tax efficient as it used to be.
- There are also Energy Performance Certificate demands that will need to be met in the future when new legislation comes in.
Compared to other regions London has a lot of rental properties and a flood of landlords selling up could add more supply to the London market causing prices to fall further than other regions.