The gap between property prices in London and the rest of England hit its peak in March 2016, when a home in the capital cost a record 109%, or £241,980, more than the average home in England. This also happened to be the month before the 3% stamp duty surcharge was introduced.
Since then, property prices in the regions have been rising faster than in the capital, closing the price gap. This is typical behaviour seen in the second stage of a house price cycle. The average value of a home in the capital has increased by 11% since March 2016 compared to 34% across England.
This means the average London property now costs 73%, or £219,150, more than the typical property in England. However, this adjustment has taken place over a much longer period than in previous property cycles. So far, it has been 95 months and counting where price growth in the capital has lagged the rest of the country. In previous cycles, that adjustment took 43 months between 2001 and 2005 and 53 months from 1987-1992.
We are also now at the point where the gap between London and England prices is below its last 2001 peak. Many factors have weighed on property prices in the capital, including the tax environment, where second homeowners and foreign buyers face higher taxes; stricter anti-money laundering rules introduced in 2017; and the effects of Covid, which saw people shun the cities for more space in the country.
However, given the scale and length of the adjustment, we think we’re pretty close to a turning point for London to start outperforming once again. Over the last year, property prices in England are down by 1.5% and in London they are down by 3.9%; yet, while it is still early days, our market metrics so far for 2024 point towards the London market recovering a little quicker.
Behavioural patterns also play a part in our expectations for the London market to start its recovery now. Many homeowners in the capital have held off from selling their home over the last 18 months amid high interest rates and global economic uncertainty and this has been especially the case for homes over £1m and in Prime Central London.
House price changes have had an impact too. Just over 7% of households in Greater London who bought in 2014 have since sold up and moved elsewhere. This figure compares to 11% across England & Wales and just 3% in Prime Central London (PCL), where, for the most part, property values have slid sideways. This means PCL sellers are less than half as likely to have moved than the average Londoner and a third as likely to have moved than the average person nationally.
However, households tend to move every 10 years and we are now at a point where those people who bought around 2015, when transaction volumes were high, will likely be thinking about moving. What is more, the swift pace of rental growth coupled with fairly flat property prices has also increased rental yields to levels that may just tempt a few opportunistic investors back into the market.
The big question is: will the next cycle be a repeat of this one? In general, we expect London prices to start outperforming the rest of the country towards the end of this year, led by Prime Central London once the General Election is out of the way. However, we don’t think prices in the capital will move as far ahead of the rest of the country as they have in the past – in other words, we don’t think the next London price peak will be about 30% higher than it was between 2001 and 2016.
