London house prices

While the UK’s property market is enjoying a four-year high, London is “lagging behind” as house prices in England and Wales accelerate sharply.

The Daily Telegraph reports that a Royal Institution of Chartered Surveyors (RICS) monthly poll of its investors found that “activity in the property market continued to increase in August” with buyer inquiries, agreed sales and new instructions all rising. 

The RICS report revealed that every part of Britain is experiencing house price growth except London, with prices in the capital staying flat in the past two months. 

Buyers taking advantage of the stamp duty holiday means London’s housing market has stabilised with activity continuing to rise, City A.M reports. 

Research by GoCompare says the average cost of a house in the UK is £254,630, MyLondon reports, but buyers looking in the capital would need to fork an average of £658,948.

‘No silver lining’ for first-time buyers’

13 August

First-time buyers hoping to get on the property ladder if house prices drop as a result of the coronavirus crisis are likely to be left disappointed, according to a new report.

The Resolution Foundation says that while the ongoing recession may see property prices plunge by up to 22% over the next year, in London and across the UK, would-be home owners will be hindered by other factors including credit conditions and stagnant incomes.

“The average first-time buyer is in no stronger a position today than before the crisis,” the independent think tank says in its latest Housing Outlook report. “House prices may be set to tumble, but so too are incomes, while tighter credit conditions could limit options further.

“Moreover, the recently announced cut to stamp duty has effectively removed one of the few advantages that aspirant home owners had in the housing market. All this leaves the average first-time buyer as reliant on parental or state support as before.”

House prices held steady in July, following Chancellor Rishi Sunak’s decision to introduce a stamp duty holiday, which is due to last until March 2021. The measure is intended to “reboot” the property market following the first downturn in home values since 2012, says The Guardian.

However, the Office for Budget Responsibility (OBR) has predicted that property prices will still plummet by more than a fifth by the third quarter of 2021, “before a long and slow increase in property values takes hold”, the newspaper adds.

The Financial Times reports that rather than levelling the playing field, the drop in property prices and the surrounding economic fallout of the pandemic is “likely to deepen inequality of access to housing”. Buyers with an “existing cash pile or access to the bank of mum and dad would be able to take advantage if prices fall”, says the paper.

Lindsay Judge, principal research and policy analyst at the Resolution Foundation, said: “The coronavirus crisis has had a big impact on the education, career prospects and incomes of young people – and unfortunately, there’s no silver lining for this group when it comes to house prices.”

What will happen to London house prices in 2020?

28 April

This year is expected to see half as many house sales as in 2019 because of the coronavirus outbreak, property website Zoopla has predicted.

The number of sales across the UK had been up by 11% compared to last year - until 23 March when lockdown began.

The government has said home buyers “should, where possible, delay moving to a new house while measures are in place to fight coronavirus”. While sellers can continue to advertise their properties, they have been warned against allowing any visitors into their home for viewings.

As a result, around 373,000 property transactions worth £82bn are currently on hold, reports This is Money.

While these may complete later in the year, Zoopla has said: “Our latest forecast is that completed sales will be 50 per cent lower in 2020 than 2019, allowing for a proportion of stalled sales to complete and with a delay to sales that would have progressed.”

Analysts have predicted a drop in house prices this year, particularly as the economy shrinks due to the coronavirus lockdown.

Knight Frank has estimated a 3% dip across the UK this year and a 2% dip for London. This prediction for the capital is echoed by London estate agent Chestertons.

“Despite the gloomy outlook for house prices this year, most analysts believe the housing market could make a strong recovery by 2021,” says City A.M.

Knight Frank forecasts that London house prices will jump 6% next year, while Chestertons puts the rise for central London between 3% and 4%.

–––––––––––––––––––––––––––––––
For a round-up of the most important stories from around the world - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Start your trial subscription today
–––––––––––––––––––––––––––––––

MoneyWeek’s expert commentators on the impact of coronavirus

With the housing market in limbo, The Week’s sister publication MoneyWeek has been assessing the likely effect of the coronavirus outbreak on house prices in London and across the UK.

For six free issues of MoneyWeek, containing expert analysis of the housing market and other investments, sign up here.

John Stepek, MoneyWeek executive editor, says house price data will be more or less meaningless for the next few months:

“There will be some forced sales (hopefully not too many, given that people should now be able to ask for three-month mortgage holidays where needed), and there will be some cash buyers. However, for anyone who isn’t a professional property flipper or large-scale landlord, none of that is terribly relevant. In stock market terms, this isn’t a crash - it’s more like the market has actually been shut.

“So what happens when it re-opens? The estate agent optimists argue that there will be pent-up demand, but I don’t think we’ll get a V-shaped recovery. A lot of people who had wanted to move will either find that they can’t be bothered any more, or that they are too worried about job security to do so.

“I think interest rates will be capped for quite some time and that inflation will be given as free a rein as possible to take off and start eating away at all the debt we’ll have incurred during this. That in turn could lead to higher demand for physical assets such as property, and higher prices.

“However, this depends on the economy bouncing back strongly and there being no lasting rise in unemployment. I think that’s still possible - and obviously in the longer run the economy will recover - but it’s the timescale that I’m not sure about.

“Long story short - you can’t move right now so worrying about house prices is probably a waste of time. In six months, we’ll see where we are. In the longer run, I’d expect a combination of low rates and rising inflation to push prices up. But it might be a wee while before we get there.”

Dominic Frisby, MoneyWeek columnist, says the coronavirus outbreak looks likely to have a more serious effect on the economy, jobs and housing market than the financial crisis of 2008 - and predicts that we probably won’t see anything like the boom that followed the credit crunch:

“It seems fewer people will have the well-paid jobs that justify the loans that will keep house prices high. Even with all the bailouts and mortgage holidays, there are going to be more forced sellers. Some will need to realise the capital. Second homes might no longer be affordable. There won’t be the influx of foreign buyers…

“Successive governments, whether of the left or right, have shown themselves willing to bail out the housing market at all costs. None wants a house price crash on their hands. Do not underestimate the lengths they will go to to bail it out this time… [But] there’s an outside chance that the government will use the crisis as an excuse to let house prices fall. That could give us the lower prices that this country so badly needs if housing is to become affordable again to anyone born after around 1985. But I’d say it was unlikely.

“We’ll have a clearer idea of where house prices are going once the market unlocks. I wouldn’t be at all surprised to see many of the existing transactions currently on hold fall through due to the sudden change in economic circumstances.

“The UK housing market, with some exceptions, has proved the most improbably resilient market over the 50 years of my existence on this good earth. But its time may finally have come.”

–––––––––––––––––––––––––––––––
For a round-up of the most important stories from around the world - and a concise, refreshing and balanced take on the week’s news agenda - try The Week magazine. Start your trial subscription today
–––––––––––––––––––––––––––––––