What now for London Property Prices post Brexit

publication date: Jul 7, 2016
 | 
author/source: Kate Faulkner, Property Expert and Author of Which? Property Books

What now for London Property Prices post Brexit

Over the past few weeks I have spoken to some very nervous Londoners. With prices having done pretty well there since 2009, there is a nervousness that with Brexit, prices will come down.

When I say nervousness, some are very excited and hopeful prices will come down, but only if they are planning to buy in the future. Those who have just made offers or are in the middle of the purchase are keen to know:

What next for London property prices?
To have an idea of what might happen next, it’s good to take a look at what’s happening currently. And the reality is they are still performing pretty well, unless you are in the prime locations such as:

Hackney, Islington, Westminster, Kensington and Chelsea and Hammersmith and Fulham

These areas have had tremendous growth of 50-70% since the credit crunch, but now are growing year on year at below their annual average, with prices going up by just a few percent as opposed to the double digit rises we’ve been witnessing.

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However, other areas in London are doing much better, so in summary:

Price rises over 20% year on year:
Waltham Forest, Barking and Dagenham, Newham and Lewisham

Price rises over 15-20% year on year:
Areas on the outskirts of London are seeing the best rises and these include Bexley, Enfield, Croydon, Harrow, Redbridge and Hillingdon, but also the likes of Camden and Southwark are still powering property prices forward.

Price rises 10-15% year on year:
Previous property price rises have meant these areas are still growing, but at a lower rate, so the likes of Hounslow, Kingston, Bromley and Ealing are still up, but the rate of growth is on decline.

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What will happen next to London property prices?
The reality is, it’s probably already been predicted. Most pundits were saying that price rises in London would start to slow down (that’s not the same as prices falling) as prices have risen so much since the credit crunch they are now ‘butting up’ against affordability issues, especially as lenders are restricted on how much they can lend at 4.5x income. Plus, of course, as prices rise, the mortgage market review means affordability stress tests are harder to achieve.

Mark Carney’s comments to buyers
In his speech yesterday, Mark Carney said: "We are advising people to be prudent," "If you are taking out a mortgage, at some stage during the life of that mortgage, conditions will be difficult.”

"You want to be able to ensure that you can service that mortgage even if times are tough, so think about where interest rates will go, where wages will go in the lifetime of that mortgage."

And that’s pretty sensible advice. Those who bought in London at the top of the market in 2007/8, saw their property prices fall by 15-20% during the credit crunch and they fell for 11 and 21 months before they started to rise rapidly again.

They are now between 36% to 73% above the height of the market, so their recovery has been pretty fast and furious.

Will price rises in London slow down or fall?
The pundits have been out giving their thoughts on what will happen next, so here’s a summary, including which ones I think are worth taking on board:

  • Merrill Lynch suggest properties in London could see 10% falls
  • Savills suggest price growth will reduce and sales and purchases will fall in the short term
  • KPMG think prices will drop more than 5%
  • Howard Archer, chief economist from HIS Global Insight suggest prices will fall 5%

There are more prediction round-ups like this in the following article from The Week.

Download our comprehensive London Borough price data

Hometrack’s Richard Donnell’s view for London:
“The decision to leave the EU will be most keenly felt in the London housing market which is already facing headwinds. House price growth in the capital varies between double digit growth in lower value areas and weaker, low single digit growth in central London areas.

“Modest single digit price falls now appear likely in higher value markets as prices adjust in the face of lower sales activity and weaker investor demand. These markets have seen some of the highest growth in the last five years of up to 90% so a modest correction can be accommodated. Even a sharp, prolonged fall in the sterling is unlikely to attract overseas buyers in the near term.

“Across the whole London market, where house price growth is running at 13%, we expect the rate of growth to slow rapidly in the short term on uncertainty and affordability factors.”

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My view?
For prices to fall in London we’d really need to see ‘credit crunch two’ conditions – and at the moment, that’s difficult to see.

The reality is that there isn’t one housing market in London, there are 32 London boroughs whose average house prices range from £272,000 to over £1,300,000 and property price increases year on year are from 1.3% to over 25%. Within each of these ‘markets’, property prices for one-bed flats versus three-bed houses etc vary dramatically, too.

So the most important thing over the summer is that you market watch the property type and area you want to buy in very carefully. Pick three or more properties you like and see what happens to them over the coming months.

  • Do they sell?
  • Are prices being dropped?
  • Are they still rising?

It’s only by watching the micro market where you are considering buying and selling that you’ll really be able to gauge for yourself if now is a good time to buy or sell or not!

Need some help? Do contact me and I’ll do my best to go through your options.

 


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