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London house prices: property in the capital is at its most affordable since 2014

 (jasonhawkes.com)
(jasonhawkes.com)

Housing affordability in London is at its best since peak unaffordability in 2016, and in line with 2014 levels.

New data from Zoopla shows that the average property price in the capital is now 13 times the average earnings, down from a high of 15 in 2016.

Most mainstream mortgage lenders will only offer a mortgage worth 4.5 times a borrower's salary.

These latest figures also revealed that London is leading the country in terms of buyer demand, up 21 per cent year-on-year.

However, while the demand is there, house prices remain subdued, and the London market has experienced an annual decrease of 1.1 per cent year-on-year.

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This slight price reduction, when coupled with rising earnings, means that London’s affordability is on the rise as the house-price-to-earnings ratio is at its lowest since 2014.

While this is positive news for those wanting to get on the housing ladder, there is still the hurdle of mortgage rates, which have doubled since 2021, and are significantly higher than they were in 2014, when the Bank of England’s base rate was 0.5 per cent.

London leading the way

The increase in demand for property in the capital is not unsurprising. The supply of homes for sale is 22 per cent higher than a year ago, giving buyers more choice, and mortgage rates, while higher than previous years, have come down from their peak.

Buyer interest is consistent across both inner and outer London, perhaps an early sign that, after seven years of a relatively stagnant market compared to the rest of the country, the capital’s housing stock is on the up again.

London house prices have only increased 13 per cent since 2016 (compared to 34 per cent nationally), a result of the combined effect of tax changes, the Brexit vote and Covid affecting working practices.

What’s more, when mortgage rates increased, this hit the London market harder than lower value areas.

The market for flats in the capital has been especially weak, and their average value is just two per cent higher than it was in 2016.

“We have most certainly seen a spike in activity across all prices ranges from a buyer enquiry perspective in the early part of 2024 and alongside that there are more sellers looking to list their property, with both exceeding our internal expectations for January,” says Tom Ashwood of Tom Ashwood Real Estate.

Sellers taking big discounts

While there are more buyers out there, sellers shouldn’t expect rising house prices anytime soon.

Zoopla found that almost one in four sellers across London and the South-East were accepting 10 per cent off their asking price to secure a sale.

This is compared to one in five across the rest of the country and shows sellers need to price realistically if they want to move.

“This improvement in activity will support sales volumes which, at one million, reached an eleven-year low in 2023,” says Richard Donnell, Executive Director at Zoopla.

“We don’t see these trends as a precursor to higher prices in 2024 as it remains a buyer's market.

"Sellers looking to move should be encouraged by these early signals of activity, but buyers remain price sensitive and focused on value for money. Over-optimism by sellers could quickly stall the current improvement in market activity.”

Factors such as a greater supply of homes and higher mortgage rates for those yet to refinance mean that, while the market’s sales will be buoyant, house prices will not increase in the way we’ve seen previously.

Have prices risen or fallen in your borough?

Looking at things at a local level reveals a general reduction in prices across all boroughs, bar Barking and Dagenham, which had a minor increase of 0.4 per cent annually, making its average house price £331,400.

Barnet and Bexley saw the smallest reductions of 0.3 per cent and 0.4 per cent respectively, making the average house price in these boroughs £574,300 and £395,100.

At the other end of the scale, Wandsworth saw the biggest dip in prices, down 3.5 per cent annually to £661,400, followed by Waltham Forest with a decrease of 2.6 per cent (to £491,500) and Tower Hamlets with a 2.3 per cent drop to £477,600.