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London House Prices Dip: A Sign of Changing UK Property Landscape?

House prices in London have decreased by 0.6% over the past year. This marks the first downturn observed in any region since the market virtually halted in the spring of 2020 due to the pandemic.

Contrastingly, the broader UK housing market saw an average price increase of 1.7% in the year leading up to June. This rate is slightly down from the 1.8% growth observed the previous month. In real terms, the average house price across the UK has now reached £288,000. While this figure is £5,000 more than the previous year’s average, it still falls short of the peak recorded in September by £5,000.

Interestingly, between May and June, house prices recorded a 0.3% rise, offsetting the 0.3% drop witnessed in the month prior, when adjustments for seasonal fluctuations were made.

Regionally, the North East saw the most modest average house price of £161,000. Meanwhile, London, despite its recent decline, continues to boast the highest average house price, standing at a hefty £528,000.

The recent index highlights that June’s annual house price growth rate was consistent at 1.7%. On a monthly perspective, there was a subtle increase in house prices by 0.7%. These figures provide valuable insights into the ever-evolving landscape of the UK’s housing market.

Industry reaction

Sarah Coles, head of personal finance, Hargreaves Lansdown, commented:

“London is setting a fashionable trend that the rest of the UK may be doomed to follow. House prices in the capital have fallen in the year to June – for the first time since the market was effectively closed at the start of the pandemic. The country as a whole clung onto positive growth of less than 2% over the past 12 months, and the outlook for the coming months looks fairly grim.

This set of figures reflect sales agreed as far back as March, when the market looked more attractive. Mortgage rates were on their way down from the highs they hit in the aftermath of the mini-Budget, and reached their cheapest in six months. It means sales completed in June recovered slightly from a downward trend, and house prices during the month actually rose very slightly from a month earlier.

There’s still the chance of a relatively soft landing for the market, because there are still some positive signs. Mortgage approvals have been rising in recent months, and we’re starting to see signs that the fixed rate mortgage market may have peaked – at least for the time being. While the jobs market remains relatively robust and rents rise relentlessly, it will help support demand.”

Sarah Tonkinson, Managing Director of Institutional PRS and Build to Rent, commented:

“July’s market experienced a rise in activity that always comes with peak lettings season; demand increased 13%. This period always sees a flurry of activity as families move to London, new graduates head for London workplaces and the student population make plans for the coming academic year. The good news for renters is that there is 6% more stock available compared this this time last year, but competition is still fierce for quality properties and allowing enough time for your search is still key!”

Nathan Emerson, CEO of Propertymark commented:

“The housing market remains strong for both buyers and sellers. Sellers are making a gain on their property price compared to this time last year, and buyers are still able to negotiate to find a middle ground.

“After positive inflation news has bought the potential for a peak in interest rates sooner than previously expected, there is also some hope that fixed mortgage rates will start to fall. Even as they remain high compared to recent standards.”

Managing Director of House Buyer Bureau, Chris Hodgkinson, commented:

“It’s certainly a buyers market at present in terms of the supply and demand balance, but that doesn’t mean sellers are drastically cutting their asking prices just to secure a sale. So while buyers may well be spoilt for choice and able to secure a property with little competition, any attempts lowball sellers during the negotiation stages are likely to be unsuccessful.”

CEO of Octane Capital, Jonathan Samuels, commented:

“Headline inflation may have fallen to 6.8% today, but we’ve actually seen an uplift in core inflation to 6.9%. This is the indicator the Bank of England will be most concerned about when it comes to setting interest rates and so it’s likely that we will see the base rate climb to 6% this year, as expected.

Unfortunately it’s the nation’s homebuyers who are set to suffer and the Bank of England’s softly softly approach is only prolonging their pain.”

Nicky Stevenson, Managing Director at national estate agent group Fine & Country, commented:

“House price growth is cooling, but today’s fall in inflation sparks hopes that the economy is turning a corner, and bolsters the chances of the property market experiencing a soft landing.

The Bank of England may also be nearing the point where it presses pause on further base rate hikes, which would bring greater stability to mortgages and, in turn, promote more confidence in the property market.

Smaller homes in affordable locations close to major employment hotspots remain the most popular properties. Buyers are also searching for homes that have been sensibly priced, and these continue to attract a number of offers.”

Emma Cox, MD of Real Estate at Shawbrook, commented:

“A modest increase in house prices sees the market yet again defying expectations in the face of fluctuating rates, and a slowdown in activity. For real estate professionals, the current phase could be an opportune time to explore new possibilities.

With the property market overall less busy, a reduction in competition from owner occupiers will create a favourable environment for landlords to consider expanding portfolios. With a robust demand in the rental market, landlords might consider diversifying into higher-yield options like Houses in Multiple Occupation (HMOs), which could in turn contribute to an increase in available properties for rent.”