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House prices and demand in the capital

ended 03. November 2022

Following today's interest rate decision, and the gloomy Bank of England prognosis for the economy, an article in tomorrow's Evening Standard will be looking at the London property market. How hard do you think prices in the capital could be hit and by how much could demand drop off?

9 responses from the Newspage community

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Andrew Montlake
Managing Director at Coreco
A correction of around 10% in the capital is a real possibility after this week's rate rise by the Bank of England. House prices in the capital are set to come under pressure, but the sizeable drops of 20%+ that some are predicting are frankly unrealistic given the lack of supply. In reality, a fall of 10% is really just the froth coming off the market and a reversal of the unsustainable growth we have had since the Stamp Duty holiday mid-pandemic. Let's not forget either that a softening in prices will actually stimulate the market as it will drive more transactions. If there's one thing everyone can agree on, it's that the age of dirt-cheap money has been relegated to the dustbin of history. Much now depends on the long-awaited Financial Statement and accompanying OBR Report later this month. Whilst no one wants to see a full-blown austerity drive again, there are some tough decisions that need to be made to plug the gaping hole in the UK's finances.
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Ross Boyd
CEO at Dashly.com
The capital's housing market could be hit for six after this week's 0.75% base rate increase, despite the fact we knew it was coming. Demand has been dropping off in recent weeks anyway as mortgage rates soared following the mini-Budget and people took stock, but rates rising to 3% will see many people firmly batten down the hatches. It's not inconceivable that house prices in the capital could drop by 10%-15% over the course of the next year or two as we enter what the Bank of England predicts will be the longest recession since records began. Much will depend, of course, on how the jobs market holds up. Winter is coming.
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Joe Garner
Founder & Managing Director at Joe Garner Consulting
House prices are going to drop and drop hard in the capital. Demand has been decimated over the past two months. Super prime, prime and anything priced north of £500k could see up to a 20% drop in value. Cash is king now. Investors will be waiting for bargains, high net worths will be protecting their assets, and the 'Average Joe or Jill" 3-bed semi owner will be battening down the hatches to make sure they survive the rate increases and energy price hikes. Asking prices are being reduced on sales platforms, mortgage approvals are back to pre-pandemic levels and surveyors are seeing enquiries drop dramatically. Borrowers will struggle to make repayments as their fixed product deals come to an end, lenders will start preparing funds for bad debt recovery and house builders will slow down the supply of new homes in order to match delivery with future demand currently stymied by expensive debt and uncertainty. In the meantime, private rental costs will soar whilst social housing providers come under increased pressure to house those people who have sadly become homeless due to rising mortgage and rental costs. The outlook is grim.
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Samuel Mather-Holgate
Independent Financial Adviser at Mather and Murray Financial
Estate agents in the capital have been hit harder than the rest of the country as higher rates affect these transactions more as the values are that much higher. We have seen referrals from London agents drop significantly more than in other areas of England as rates rises bite. Interests rates got hiked by the biggest amount in over 30 years this week, and more rises are likely over the next six months. I expect this to really dent the London property market. The more affluent agents, such as Knight Frank and Savills, have predicted a crash of 10% in London but I think it could be worse than this. I expect, in some areas, prices to fall by double this and transaction levels to reduce by over 50% as homeowners refuse to accept the new value of their home. Despite the Bank of England predicting this recession might be one of the longest since records began, I think the market in London will bounce back quicker than anticipated. Lower property prices and a weak pound will attract overseas investors and supply side reforms by the government should inject energy into the housing market. There's a lot of uncertainty around house prices at the moment, especially in London. Buckle up.
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Aaron Strutt
Product and Communications Director at Trinity Financial
Lots of people are really struggling to understand how these base rate hikes are going to help the economy recover and avoid a pretty harsh recession. Purchase activity is understandably stalling as buyers get cold feet and it is not a surprise given the massive monthly mortgage repayments many will need to find to pay for a property. The prime London market is going to take a hit until mortgages are more affordable again and first-time buyers with lower deposits have more options.
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Riz Malik
Independent Financial Adviser at R3 Wealth
Thursday's rate hike is going to be a severe blow to the London housing market, with prices expected to fall up to 10% in the short term. Residential purchasers are going to be praying harder than ever that chains remain intact. Investors will need to dig deeper into their pockets to fund shortfalls that previously would happily have been covered by lenders. Chain-free buyers now hold the cards and we may see another rate increase before the year is out. The capital, like much of the country, is in for a long and bleak winter.
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Ashley Thomas
Director at Magni Finance
With mortgage rates where they're now at, it's very likely that house prices in the capital will start to fall. The demand that was there just two months ago has vaporised since the mini-Budget and chaos since. A 10% house price correction in the capital cannot be ruled out. However, as we have seen in the past, in the long term prices will recover and increase above their current value. If you're in property for the long term and willing to ride out the storm, there is potential for some good property investments over the next year.
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Alex Mosley
Director - Perrygate at Perrygate - London Buying Agent
Central London risks becoming a two speed market. Below average stock, such as basement flats or speculative developments, may be exposed while genuine best in class property is simply withdrawn from the market until the storm clears. Those wanting to buy genuinely prime property in central London may have to be patient.
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Rob Gill
Managing Director at Altura Mortgage Finance
London buyers have been hit hard by the rocketing in mortgage rates caused by the infamous mini-Budget. Purchases that made sense with a mortgage rate of 3%-4% suddenly look very different at a rate of 5%-6%. That's a big rise in the space of just a few weeks, and a signifiant increase in monthly payments on a typical London mortgage. Demand is likely to drop off sharply during the winter, as when the Bank of England says we are about to enter the longest recession on record, people take note.