London property prices have fallen by a quarter in real terms since Brexit, as demand from wealthy international buyers dried up.
House prices in the capital, when adjusted for inflation, have been on a downward trend ever since the UK left the European Union in 2016, according to a report by investment bank UBS.
Would-be international buyers refrained from snapping up premium London property in the years following the divisive vote, fearful of how Brexit would impact London’s standing as a global financial centre.
Property experts expected demand to bounce back once restrictions on international travel, imposed during the pandemic years, were lifted.
However real estate agency Savills noted in its most recent report on prime London property prices that there was still “a continued lack of urgency among international buyers who have been relatively slow to return to the market”.
“In the absence of strong international demand, house prices remain under pressure as local affordability is at its worst since 2007, due to high mortgage rates,” the UBS report said.
Properties in London shed 14pc of their value between June 2022 and June 2023 amid soaring mortgage costs and falling demand – marking the biggest fall since the financial crisis.
The average property in London now costs £534,000, according to data published today by HM Land Registry, down by almost £10,000 since this time last year.
London’s premium market has been less impacted by surging mortgage rates, however prices of the most desirable properties in London “were only just able to hold their own” without the influx of wealthy foreign buyers, the report added.
‘Overvalued’ housing market
Caroline Simmons of UBS Global Wealth Management, said: “Our broader assessment of the London housing market is that it remains overvalued, albeit at a lesser level than pre-pandemic.”
Londoners currently require ten times their annual income to buy a 60 square metre flat.
Unaffordable prices and a landlord exodus have put enormous pressure on the rental market, with rents rising at their fastest pace since records began in 2006, according to new data from the Office for National Statistics.
Myron Jobson, of the stockbroker Interactive Investor, said the situation in London is now at boiling point. “The rental squeeze is feeding into the broader housing market,” he said: “Higher rents mean less disposable income to put toward saving for a home purchase – forcing many to delay their plans to buy a home.”
Surging inflation and rising interest rates across the globe have burst the world’s biggest housing bubbles, the UBS report added. Only Zurich and Tokyo are now in the “bubble risk category”, down from nine cities last year.
Across the 25 cities analysed, annual house price growth ground to a halt as mortgage rates surged. On average, cities lost most of the real gains they made during the coronavirus pandemic, bringing prices back down to mid-2020 levels.
However, many major cities continue to have “overvalued” housing markets, including Munich, Tel Aviv and Stockholm.