The housing market has stalled to a crawl, with a negligible increase in average house prices and a large drop in transaction volumes. London renters are getting younger and spending a higher proportion of their income on rents, which are still increasing, particularly for larger properties.
Buying and selling property in London requires confidence, but Brexit has been blamed for a chronic lack of confidence among London’s house buyers, pushing many sellers to reduce their asking prices. London’s previously strong house price growth is slowing to a crawl, at 0.8 per cent in the year to October 2018, and remains lower than in the rest of England and Wales.
Meanwhile, it was reported that the total value of London’s housing stock fell by a record £26.2 billion in 2018, the first decrease since 2009. Experts predict even sharper declines this year, given the recent failure to reach an agreement on a Brexit deal in Parliament.
Sub-regional differences in house prices
The picture across the capital looks subdued, with varying levels of growth at the sub-regional level. Q3 2018 saw a cooling of London’s market, particularly in the west of the capital, which has traditionally been an area of strong growth. Inner west London house prices increased by only 1.46 per cent year-on-year – a significant decline on the last quarter. In contrast, south London saw house prices increase by 6.48 per cent in the 12 months to Q3 2018 – in contrast to previously sluggish growth.
Barking and Dagenham remains the cheapest borough to buy a house in, with average housing prices of £315,493, whilst Kensington and Chelsea is the most expensive, with prices averaging at £2,115,947. Greenwich is the cheapest inner London borough, with average house prices of £502,000, and Hounslow the cheapest in west London, at an average £530,000.
With house price growth in London slowing to a crawl, there are fears that continued Brexit uncertainty and a possible ‘no deal’ could lead to a contraction of the market, as warned by the Bank of England last November.
Transactions, by type
Continued uncertainty around the Brexit negotiations has caused activity in London’s housing market to slow, deflating confidence among buyers. With fewer people looking to buy or sell, transaction volumes fell for all property types in the quarter to October 2018 – to 20,100 transactions – an 18 per cent decline on the previous year. The number of flats bought and sold saw the sharpest decline, falling 25 per cent in the year to October 2018 and narrowing the gap between other housing types.
Commentators argued that first time buyers struggled with tighter lending, high house prices, and insecure employment, while existing homeowners took advantage of historically low mortgage rates and sought to reduce their overall level of debt.
The Office for National Statistics’ experimental Rental Price Index (RPI) tracks the prices paid for renting property from private landlords in Great Britain.
In November 2018, after six months of declining rents, year-on-year prices in the capital remained static. Though most recent data indicate a strengthening of the market, rental growth is still a long way below the 4 per cent per year increases seen in 2015.
Annual rent change, by property type
Dataloft figures on actual rents paid, based on reports from around 15 per cent of transactions, indicate that London rents actually increased in Q4 of 2018. Terraced houses saw the largest rent increases, by a notable 4.7 per cent in the year to December 2018. The rental market for single bed flats appears to have been more subdued over the same period, with growth at 1.8 per cent.
Other sources have argued that rent price growth in London has been lower than projected, due to fewer EU migrants coming to live in the capital since the EU referendum and priced-out young adults leaving for lower priced cities.
Rent changes, by zone
While the value of rents paid at the London-wide level have increased, not all areas of London have experienced the same level of growth.
Rents paid in Zone 1 – typically used as a proxy for ‘Prime Central London’ – fell 2 per cent during 2018, in contrast to significant growth in Zone 2 and 6 over the same period, at 2 per cent and 3 per cent respectively.
The average growth in the rest of outer London was more subdued. Whilst Zone 3 experienced slight growth at 1 per cent, rents paid in Zones 4 and 5 fell by 1 per cent during 2018. Rents paid in Zone 5 remained static, falling 0.1 per cent, in contrast to the steep decline of the previous year.
Age profile of London’s renters
Whilst London’s population is ageing, the profile of renters in the capital is getting younger. In 2015, the average age of a tenant was 34 years, yet today that figure stands at 32. Renters in London are younger than in the rest of the country. 53 per cent of renters in London are under the age of 29, compared to just 47 per cent across England and Wales. In contrast, only 6 per cent of Londoners living in rented accommodation are over the age of 50, compared to 13 per cent across England and Wales.
The situation is of course the reverse for homeowners, as data shows the average age of first-time buyers is increasing. In London it has grown from 31 in 2008 to 33 in 2018, while across the UK, the current average age is 31.
Proportion of income spent on rent
As rents are increasing and renters are getting younger, rent tends to take up a higher proportion of wages. The second half of 2018 saw a rise in the proportion of income spent on rent by London tenants. It increased from 30.7 per cent in Q2 2018 to 31.5 per cent in Q4 2018 – the highest level it has been in the last four years and consistently above the average in England and Wales (28.3 per cent).