London was the property market laggard in 2021, outperformed by all other regions. But the fortunes of the central postcodes and the outlying suburbs diverged. The 13 boroughs in the capital with the strongest price growth in 2021 were all situated in Outer London. Redbridge led the field with a rise of 8.1%, followed by Waltham Forest (7.5%) and Harrow (6.9%). Prices fell in the following central boroughs: City of London (-11.8%), Kensington & Chelsea (-2.9%), Tower Hamlets (-2.6%), Westminster (-2.3%) and Wandsworth (-1.4%).
As a result, the gap between the average price in inner and outer London narrowed to 28% in September 2021, down from 38% in February 2020, as the pandemic took hold. At that time, the average Inner London home fetched £158,000 more than an outer London property. The difference is now £128,000.
But London now appears to be close to a reawakening, for the bright lights. The sales market remains somewhat quiet, but the number of people seeking a property in October 2021 was 8% higher than in October 2019 , the interest apparently undiminished by the ending of the stamp duty holiday.
The November 2021 data shows that there was more eagerness to buy in the outer boroughs, but demand also increased in Inner London for the first time since the pandemic’s onset.
Asking to achieved prices were on an upward trend throughout the capital which was not the case elsewhere. In the final quarter of 2021, the average London home changed hands for 99.2% of its asking price, the highest percentage since the first quarter of 2016.
Homes in London have also been selling more rapidly. Elsewhere there has a been a slowdown as the year drew to a close.
The move towards hybrid working is encouraging more people, including many young professionals, to decide to rent rather buy in the capital’s central boroughs. In November 2021, the numbers seeking an Inner London rental home were 14% higher than in the same month of 2020; there was a 4% rise in Outer London.
This is leading to a revival in rents which at their lowest in April 2021 were as much as 20% down on their pre-pandemic level. We expect rents to return to pre-pandemic times by the middle of next year. In November rental growth in Inner London turned positive for the first time since the start of the pandemic, although at £2,329 a-month, it is still 11.6% lower than at that time.
The outlook for 2022
The recovery in London will greatly depend on how working patterns evolve. But even if workers are less tied to the office, London will remain a great place to live.
We forecast that the average London house price will rise by 1.0% this year and 1.5% in 2023. Price growth will be constrained as the economy is still on the path to recovery, and because affordability will hold back many buyers. Property values will rise most strongly in the more affordable suburbs.
We also forecast that 2024 will mark a turning point for the capital as prices start outpace the national average for the first time in nearly a decade, with prime central London leading the way.
The resumption of international travel should boost prime central London. However, although transactions will rise, price growth will be muted. Rents in this location seem set to bounce back faster.
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