London house prices are falling: Is now the time to buy and bag a bargain?

Homeowners across the country are waking up to the reality that their home may no longer be increasing in value.

But for property owners based in the capital, this is a reality many may already be all too familiar with. 

Over the past seven years, the average property sold in London has risen in value by just over 13 per cent from £472,000 to £535,000, according to official Land Registry figures.

The typical London flat owner will have seen even less growth. Between August 2016 and now, the average flat has increased only 6.5 per cent from £416,000 to £443,000.

In the same time, the average UK house price has increased by 35 per cent, from £215,000 to £291,000. 

Struggling market: The Brexit vote, tax changes, tough mortgage regulations, the pandemic and now higher interest rates have all dented demand and reduced buying power in the capital

During that time, inflation has risen by 32 per cent. That means most homeowners  in London will be looking at a chunky loss in real terms over the past seven years.

It essentially means that the average buyer who purchased a London flat in 2016 is down around 26 per cent in real terms. 

> House prices to fall further according to Rics estate agent survey 

Of course, London is not simply just one market. Instead it is made up of lots of micro-markets. Some will have done better than the average, while others may have seen the nominal value of their home fall.

For example, in the City of Westminster, the average property has fallen by 7 per cent from £1.025million to £950,000 since summer 2016.

Changes in London house prices seem all the more stark when looking back at the house price boom that preceded it.

Over the previous seven years, the average London home rose 80 per cent from £262,000 to £472,000.

Within this data there are certain areas that saw prices more than double during that time.

Rob Dix, co founder of the property forum, Property Hub says: ‘London bounced back very quickly from the 2008 crash, so by 2012 it was already miles ahead of the rest of the country.

‘From 2016 it’s been broadly flat because it got ahead of itself: you could say it had an entire cycle of growth compressed into just a few years.

‘You can see this clearly in regional price-to-income data, where London diverged massively from the rest of the country and is now falling back to be closer in line.

‘This probably has further to go, with affordability continuing to improve – through a combination of rising wages and falling prices before there’s the potential for it to kick on again.’

Richard Donnell, head of the research and insight team at Zoopla believes there are many factors that have determined how the London property market has performed over the past seven years.

He says: ‘The Brexit vote, tax changes, tough mortgage regulations, the pandemic and now higher mortgage rates have all dented demand and reduced buying power, especially from those using mortgages. 

‘Overseas buyers are still active but there remains uncertainty and they aren’t a big enough group to move the market.’

What’s happening to London house prices now?

Like many parts of the UK, London prices are falling, although data points tend to vary a little when it comes to determining by how much.

The typical London home has fallen £26,514 or 4.8 per cent over the past 12 months, according to the mortgage lender, Halifax.

Henry Pryor, a professional buying agent, says he’s currently offering around 10 per cent less on London homes than he was this time last year, though the best homes are still holding their values.

‘London is clearly shivering like the rest of the country,’ says Pryor, ‘and whilst it is often not in sync, what starts in London usually ripples out across the rest of the UK.

Henry Pryor says: ‘Asking prices in the Capital are sliding back as sellers realise that the winds of change are blowing.’

‘Buyer demand is weaker. However, whilst there are now only two buyers today rather than the five that there may have been last year the best properties are still selling well and often for more than they would have made in 2022.

‘Asking prices in the Capital are sliding back as sellers realise that the winds of change are blowing and sale volumes are falling back by around 20 per cent just as they are outside the M25.

‘I’m still offering 10 per cent less than I would have done last year as a rule, but my clients are paying the same and sometimes more for the best homes.’

Zoopla suggests the falls have been marginal over the past 12 months. It says every Local Authority in London has seen average house prices fall over the past year by between 0.3 per cent and 2.8 per cent.

The biggest faller is Croydon, which is down 2.8 per cent over the past 12 months and Watford where typical prices have slipped 2.7 per cent.

Richard Donnell, head of the research and insight team at Zoopla says: ‘House prices are under greatest downward pressure in London but prices are not falling significantly at present.

‘What is stopping the falls being larger is the fact the market has under-performed and mortgage regulations stopped households overpaying and creating a price bubble. 

‘This stopped cheap rates boosting prices as much as in the past – if we hadn’t had mortgage regulations, prices would have been around 30 per cent higher in 2020 and more exposed to price falls.’ 

Shedding value: The typical London home has fallen £26,514 or 4.8% over the past 12 months, according to Halifax

One thing that might move the dial and force prices further down is if the available homes on the market begins to rise significantly.

However, Donnell says they aren’t seeing any major increases in new listings supply – instead people are listing homes at a normal rate.

Donnell adds: ‘Weaker buyer demand means more homes are for sale as homes aren’t flying off the shelf as fast as they were post pandemic. This growth in supply has been seen more across England than in London.

‘There are 22 per cent more homes for sale than the five year average across England outside of London and 8 per cent more in London.’

> Read: What next for mortgage rates

Rob Dix, co-founder of Property Hub, believes London probably has further to go in terms of price falls. He expects affordability in the capital to continue to improve over the coming year

Some London-based estate agents and buying agents are remaining optimistic, or at least putting on a brave face. 

London agent Chestertons, says it received 11 per cent more enquiries from buyers and conducted 25 per cent more viewings in September compared to August.

Matt Thompson, head of sales at Chestertons, believes that more buyers are returning to the market following the Bank of England’s decision to pause interest rate hikes. 

He says: ‘With interest rates being held at 5.25 per cent for the time being, house hunters are feeling more secure about making major financial decisions.

‘As a result, many buyers who put their plans to buy on hold amid this year’s economic challenges have resumed their search.

Matt Thompson, head of sales at London estate agency Chestertons, says their offices are getting busier

‘Our data also confirms that the agency saw 30 per cent more homeowners wanting to put their property on the market compared to August, giving buyers a growing selection of properties to choose from.

Thompson adds: ‘Buyers are always looking for a bargain, but in reality, these are few and far between as property prices in London have plateaued rather than dropped significantly over the past year.

‘Although I expect to see more properties coming onto the market, I don’t think it is likely that we will see any drastic price reductions over the next few months.’

Jo Eccles, founder and managing director of prime London buying agent, Eccord, believes there has been a step change in activity in the prime central London sales market.

Eccles says: ‘Buyers in the market this autumn are serious about transacting and following a quiet year so far, activity levels in September are comparable to the same period in 2022.

‘Several buying clients who have been sitting on the side lines for the past few months have made the decision to enter the market in September, encouraged by the Bank’s decision to hold the base rate at 5.25 per cent.

‘Buyers are optimistic that the cost of borrowing may have peaked and rates will start to come down towards the end of this year.’

What’s next for London house prices?

Looking ahead, some are expecting we will see more of the same across London: a combination of small falls and drifting sideways.

However, there are others arguing that higher mortgage rates and higher asset prices will combine to make London prices fall further.

Rob Dix of Property Hub thinks London is most likely to see single-digit falls over the next 12 months.

‘I don’t see the conditions for a complete collapse,’ says Dix, ‘but London faces more pressure than other areas due to high interest rates and stretched affordability.

‘As a result, London is leading the way in terms of falling prices across the country and this seems likely to continue.’

Heading down: Most property commentators broadly agree that prices will continue to slide in London over the next 12 months

Should you buy in London?

For those looking to buy in London, there will be opportunities to secure good deals – though for home movers this may just cancel out the effects of price falls on the property they are selling. 

‘Currently, only six out of 10 properties listed for sale are finding buyers, mainly because many sellers are unwilling to compromise on price,’ adds Dix.

‘To take advantage of the market conditions, seek out sellers who genuinely need to sell and are willing to negotiate on price.

‘If you’re purchasing a property as your home rather than an investment, negotiating a lower price is still beneficial – but it might not be as crucial since you plan to live there for a long time.

‘Unlike the 2020-2022 period there’s the potential to get a good deal and no prospect of bidding wars, which is great, but the exact price you pay might not matter as much in the long run as finding the right home.’

Bargain hunting: Some property experts believe this could be a window of opportunity for cash buyers in London

Liam Monaghan, managing director of buying agent, London Central Portfolio also says the next few months could be a good time to bag a bargain. He believes this could be a window of opportunity for cash buyers in particular.

‘There are certainly opportunities presenting themselves in the London market for cash buyers, says Monaghan. ‘There will be a pool of sellers becoming distressed as their fixed term mortgages come up to renewal and who will need to sell their properties due to rising costs of borrowing, and are more likely to accept a lower offer.

‘Buy-to-let landlords are being especially hit, with some clients experiencing over 250 per cent increases in their monthly mortgage repayments.

‘We have also seen a big increase in first time buyers getting help from Bank of Mum and Dad, who are looking to take advantage of flat discounts in particular.

‘For example, we recently purchased a one-bedroom apartment in Bayswater (W2) for first-time buyers that was 10 per cent off the asking price, as well as a property in Battersea 11 per cent below the asking price.

‘We have also secured a four-bedroom house in Fulham on behalf of a young client where we negotiated 15 per cent off the asking price on the basis that our client was a cash buyer and was ready, willing and able to complete on a very short timescale.’

Henry Pryor has one final word of warning for London buyers on the hunt for a bargain, however. Don’t mistake the asking price for a measure of true value.

If someone is able to secure a 10 per cent discount off the asking price it may well mean that no other buyers were interested at that price, and it was probably in need of a price reduction anyway.

Pryor says: ‘As always, don’t mistake an asking price for value. Don’t make the mistake of judging your deal against the guide – either as a buyer or a seller.

‘In today’s market, sellers think it’s 2022. Buyers are back in 2019.’