London house prices are falling down, falling down…

House prices in London might have been flying high a few months ago, but the optimism of spring paled over summer — and the news is even worse for autumn. The news that house prices in the capital are falling by an average of 2.9% is particularly unwelcome at this time of year, as the property market tends to traditionally rebound in September. As yet, there’s no sign of that happening.

An average reduction in asking prices of 2.9% is huge, so what’s happening with London property — and is there a crash coming in the future?

The Good News

Starting with something positive: if you want to buy a house in the capital, then you’re in luck. There’s no doubt the shrinking house prices make for a buyer’s market. With this level of fall in asking prices, there’s almost certainly room for further negotiation with buyers who are growing nervous.

Not only could you snap up a bargain, but your money is going to go further. Properties that would have been outside your budget only a few months ago may suddenly become affordable. If you have got your eye on your dream home, now is the time to jump and sell your existing home as quickly as possible with a service like Goodmove so you can snap up a bargain ASAP. If you’re wondering why is speed so important, brace yourself for…

The Bad News

Potentially the main influence on the housing market won’t actually be connected to the market itself, but a tangential link. UK inflation has risen to 2.9%, a rise of 2.7% in the past 12 months. If inflation continues to increase, then the Bank of England will likely be forced to raise interest rates. As a result, everyone’s mortgage will become more expensive. This will also have an impact on the number of people who are able to get first-time mortgages approved.

So if you’re looking to sell your home, then it’s probably wise to do so prior to an interest rate rise that could price thousands of people out of mortgage borrowing — and thus reduce the pool of buyers.

The Ugly News

The question of a housing market crash has been discussed and debated time and again, but to an extent, soothsaying is hopeless. The market is volatile, the political landscape is volatile — no one really knows what’s going to happen.

However, it’s fair to say that the signs don’t look good. As the housing market news has become progressively worse over the summer, consumer confidence is falling. A recent YouGov poll found that over half of the those surveyed feel there will be a housing crash within the next five years. Many economists have also suggested the UK has been overdue a price correction for some time, saying existing levels are overinflated and will inevitably fall. That might make sense economically, but there’s a chance that Londoners — whose housing is already so expensive — could find themselves in negative equity as a result.

So if you want to sell, now is the time. If you want to stay put, then look for a new deal on your mortgage to ensure you’re not hit too hard by any future interest rate rises.

4 Responses

  1. David Knowles

    About time. Many people will simply have to live with the fact they overpaid for their homes. An mortgage companies just have to hope people keep paying there mortgages.

  2. richard hale

    On the face of it falling house prices are good news, as they have been far too high for far too long, and not just in London. However, you really need to look deeper into the cause of the fall, and why prices are too high to begin with. As an Irishmen would say when asked for directions, you would not start from here. House prices are too high for a number of reasons :- 1 Interest rates have been criminally low for far too long, this has resulted in borrowed money going to all kinds of assets, including houses, pushing their prices up, not because of any real increase in their value but as a defence against negative interest rates due to inflation. This has created a feedback loop where investors see rising asset prices which look like a good deal compared to the negative returns on bank deposits. 2. With increased immigration from Europe of mostly single people, landlords are able to rent their houses out as multiple dwellings, increasing their yield and their ability to borrow more to finance further purchases and thereby pushing house price further. 3 the government has also supported landlords as they have effectively guaranteed rental returns by paying whatever the landlord charges to tenants who receive benefits, for many years. 4 the relaxation of credit controls in the 80’s meant that banks could, have and continue to lend too much money to finance individual house purchases relative to the income available to repay mortgages . 5 insufficient investment in public housing since the 80’s.
    At some point, possibly now, something will break. It could be a rise in interest rates, which will mean borrowers will struggle to repay existing loans leading to a crash in prices. It could be that would be borrowers are simply no longer able to pay the existing prices on their wages, even at the low interest rate we see today, so that real demand is taken from the market and it will either stagnate or fall, and once it starts to fall historically the housing market falls a long way, especially when interest rates rise. It could be a general financial crisis for some reason, which is quite likely as the banks have not been reformed yet, It could be a combination of any or all of the above.
    My belief is that the market has reached saturation point with the number of people able to pay the current high prices combined with uncertainty about how high interest rates may rise. We are in a similar position to that of 1988, which saw a slump in prices and negative equity for many years and a more general economic depression. For the majority of working people this will not be good news. My advice to anyone wanting to buy a home on borrowed money right now is wait until interest rates rise, become stable and then buy, as long as you have a reliable income of course.

  3. Maybe as much as 5% as a result of Brexit, but London house prices are the highest in the country anyway so I don’t think it will make that much difference. Maybe a good opportunity for investors until prices stabilise again.

Leave a Reply