The London housing market began to rebound in 2021, with prices reaching new peaks in 30 out of the 33 boroughs. However, the capital’s revival should be seen in context. The last time that an average home in London found a buyer faster than one outside the M25 was back in March 2016.
In March this year, it took an average of 43 days to sell a London home - which was 16 days longer than the average time-to-sell for other regions.
The pandemic race for space, affordability pressures on younger buyers, a lack of international buyers and changes to taxation are among the factors holding back the London market. The cost of living squeeze is set to soften demand, although homeowners with equity in their existing homes and lockdown savings should be less affected.
However, the slowdown in the city was exacerbated by lockdowns, London started to lag other regions in 2017. We expect this trend to continue until 2024 when we forecast that the current housing cycle should come to an end. Subsequently London should once more begin to outperform other regions.
PEAK LONDON
A price divide between inner and outer London has been a long-standing feature of the market, but this gap has shrunk. This reflects the impact of the pandemic on international travel and the stamp duty surcharge on the demand for homes in the central postcodes of the city. But it also highlights the desire for properties with substantial gardens in affluent leafy suburbs like Richmond.
The gap between the average prices in the Inner and Outer areas of capital was as much as 50% in 2013, shrinking to 33% in 2020. It now stands at 31%, its lowest in percentage terms since 2009 when the economy was still suffering the effects of the global financial crisis. The difference in the average cost between a home in Inner London and Outer London is £145,400.
The appeal of the smarter suburbs isunderlined by the performance of these locations in 2021. By the end of December, the average price in Richmond was 10.3% above its previous peak. Islington, which offers more spacious houses close to the City, was 11.3% above that level. Barnet, Bromley and Sutton also scaled new heights.
These figures demonstrate the broader revival of London in 2021: prices in 30 of the 33 boroughs were above their previous peaks (the largest number since 2017) against 23 in 2020. Only Tower Hamlets, Westminster and Kensington & Chelsea failed to surpass their previous highs. But Kensington & Chelsea is set to exceed its 2018 peak within the next few months.
WHO IS BUYING
House-hunters from overseas returned to prime central London in 2021, with EU nationals being the keenest to acquire real estate in the capital. They accounted for 14% of all deals; purchasers from the Middle East were next in line with 7%.
Sales to all international buyers made up 43% of transactions in prime central London. But they did not venture much into the outer London boroughs where the rebound was driven by domestic demand. Across Greater London, foreign nationals made up 18% of buyers in H2 2021, the lowest figure on record
Buyers moving house dominate property purchases in London, accounting for 55% of deals in 2021 and for 56% in the year to date. But, as the cost of living squeeze takes hold, first-time buyers seem to be starting to face more challenges, making up 33% of deals since the start of this year, against 35% for the whole of 2021.
recent years, investors have purchased 8-10% of properties. Their buying peaked at 17% in 2015 ahead of the reforms of the landlord mortgage tax relief that began to take effect in April 2017. Since 2009, buyers seeking a second home have acquired 1-2% of properties on the market.
MIND THE PRICE GAP
As a result of London’s muted tempo, househunters who are leaving town to find extra space and more substantial gardens must now move further out.
Since 2017 the average London house price has risen by 7% to £657,200. Over the same period, the average price outside the capital has increased by 22% to £305,650.
In 2017, the average home outside the capital cost 59% less than in London. This meant a household that moved 10 miles outside the capital could save an average of £66,000 on a new home or secure an extra 183 sq ft of space, equivalent to the size of a garage.
Stronger house price growth in the country since then has meant that this divide narrowed to 54% in 2021, obliging a household quitting the capital to move 20 miles out to find a home offering a saving of £66,000. Opting to move only 10 miles out would secure only 61 sq ft more space.
Tenants in search of more space for home working have also been forced to go further out of town. For example, the average rent in the South West increased by 23% between the start of the pandemic and March 2022, the strongest growth of any region. London rents have risen at a more modest rate.
Covid dealt cities across the world a bit of a blow. A decades’ worth of change was squeezed into a couple of years. But in the UK, we’re now closer than perhaps any other country to what a post Covid world looks like. A bounce back in office working, but not to the levels it once was, the rise of home delivery from both online and high street retailers and the shift on the high street away from products towards experiences and services are all on the cards. As London has done so many times before, it is once again reinventing itself.
