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Asking prices falling in UK, particularly London and South East

Most recent data has been upbeat about the British property market but the latest index report suggests that asking prices are falling, particularly in London and the South East, and that the trend is likely to continue.

Asking prices in the UK fell by 0.2% month on month but are still 4.6% higher than September 2015, with prices declining in six of the nine regions, according to the index from Home.co.uk.

But the decline is steeper in some areas, most notably London with a month on month fall of 0.6% and the South East with a month on month fall of 0.3%. At the same time supply is rising, up 13% in London and 15% in the South East compared to 9% for England as a whole.

The index report points out that due to price declines over the last four months, the year on year price appreciation in Greater London has been eroded to a mere 1.6% but in real terms, taking into account monetary inflation, this is probably closer to zero.

The South East property market registered a third consecutive monthly price fall this month, but prices here are falling much more slowly than in London. Demand and supply in the region remain reasonably balanced as indicated by marketing times, which continue to be some of the lowest in the country and have not increased appreciably since last year. However, supply in the region is continuing to rise and this may tip the equilibrium to the downside over coming months.

Overall, asking prices in England and Wales have slipped for three consecutive months. The report suggests that this is largely due to the burden of falls in the highly populated regions of London and the South East dragging down the national figures.

This effect masks the performance of other regional markets that are showing extraordinary growth. Prices in the East of England, for example, continue to climb, albeit more slowly, despite rising supply. Home prices have increased by 12.9% over the last 12 months, making this the UK’s best performing region by a considerable margin.

Several other regions are also still showing significant price growth. In the West Midlands, home values have increased by 6.4% over the last year. ‘Supply in the region is contracting hence we expect prices there will weather the current market uncertainty,’ the report says.

‘Overall, the current mix-adjusted average asking price for England and Wales is now 4.6% higher than it was in September 2015, and we anticipate that this figure will continue to trend downwards over the coming months,’ it adds.

Across the UK, the regional picture remains very mixed. Contrary to the adverse data for London and the South East, the East of England, the South West and the North West have shown significant price growth over the last six months, up 5.5%, 3% and 3% respectively.

The East and West Midlands also appear to be in good health for the time being, rising by 2.5% and 2.4% respectively over the last six months. Moreover, supply is contracting in these regions, down by 7% and 10% respectively year on year and the report says this will serve to support pricing as we head into autumn.

Yorkshire and Scotland have both enjoyed modest price growth over the last six months although prices now look set to dip slightly over the coming months. Supply is down by 8% in Yorkshire but up by 2% in Scotland. In Wales, the supply of homes for sale has fallen 13% year on year and prices are stable in line with inflation.

Meanwhile, prices in the North East have increased by just 1% over the last six months. Supply is steady, the index report says, but a real post-crisis recovery in the region remains elusive.

‘The current slowdown in the Greater London market should come as no surprise. We saw the first signs three years ago in the prime central London market. Supply increased and prices stopped rising after a huge period of inflation and have been slowly declining since. Belgravia, for example, has seen the typical price of a home fall by 25% (median) and the average price drop by 16% (mean) over the last 36 months,’ said Doug Shephard, director at Home.co.uk.

‘Meanwhile, properties in this upmarket area have piled up on the market. In September 2013, there were just over 1,000 properties for sale, now there are nearly 2,000. Flats dominate this local market and the number for sale has soared 116% over the last three years,’ he explained.

‘Over the last year we have seen a 27% jump in the number of properties for sale in the Greater London market. Not quite as swamped as the Belgravia market yet, but the current trend is eerily consistent with that already observed in Prime Central London. The South East seems only a few months behind. Prices have already started to slip following a surge in supply. Should this stream of new instructions continue to increase we will almost certainly see demand be overwhelmed,’ he pointed out.

‘The East of England looks like a regional market at the top of the cycle and, should that fall too, the UK national house price figures will begin to look rather poor, as will mortgage lenders’ balance sheets,’ he added.

‘Of course, Brexit came after the above trends were already established, but the uncertainty and negative economic consequences are exacerbating the situation: pruning price rises in some regions and eliciting bigger falls in others. Suffice to say, in the near term, London property investment looks like a good way to lose a lot of money,’ he concluded.

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