Almost £28,000 could be wiped from the value of an average home in the capital next year, experts have warned.
But the drop is expected to be short lived with the price of the typical property then shooting up by close to £125,000 over the following four years.
Real estate specialists JLL forecast a four per cent drop in house prices across Greater London in 2023 as rising mortgage rates and the cost-of-living crisis price first-time buyers out of the market.
With the average asking price for a home in the capital standing at £695,642 in October, according to online property marketplace Rightmove, this would equate to a reduction of £27,825 next year.
Nick Whitten, head of UK residential and living research at JLL, said interest rate hikes and the cost-of-living squeeze were expected to drive down prices in most areas of the UK over the coming 12 months.
However, London is predicted to fare better than the national average, with eight per cent falls expected in the North East, Yorkshire & Humber and Wales next year.
The trend to relocate out of London since the pandemic had subdued the housing market in the capital in recent months, Whitten explained, leaving it with “less far to fall” in the coming “correction”.
In fact the centre of the capital will buck the trend entirely with a 2.5 per cent rise in prices in 2023 according to JLL’s latest forecasts. This area will see the strongest growth in residential values over the next five years of any market in the country, the property services firm anticipates, with the typical home set to be worth almost a fifth more in 2027 than today.
Across Greater London, house prices are expected to recover from 2024 onwards, with the cost of the average residential property up 14 per cent over the five years to 2027. This would see the average home worth more than £790,000 by this date.
With supply of new homes forecast to remain constrained – JLL predicts private new home starts to average 16,000 per year, well below the Greater London Authority target for 52,000 builds per annum – the capital is due a strong bounceback from next year’s blip, Whitten said.
The real estate services firm expects house prices to rise nationally from 2024 onwards.
Across the UK, residential property values are forecast to increase by 1 per cent in 2024 before growing by 4 per cent in 2025 and a further 5 per cent in both 2026 and 2027.
Rental value growth of almost 16 per cent is expected over the same period nationally.