London house prices defy economic gloom but buyers show ‘increasing nervousness about taking on debt’

·4-min read
 (Daniel Lynch)
(Daniel Lynch)

London house prices rose 7.9 per cent in the year to April 2022, bringing the average value of a home to £529,800, the latest sold price data shows.

The capital was the region with the lowest rate of growth in the UK where house prices rose 12.4 per cent to £281,200, according to Land Registry figures.

London’s price increase was led by the most expensive and biggest properties at the top of the market with detached homes rising in value by 12.4 per cent to hit £1,088,800. In contrast, flats and maisonettes in the capital rose at half that rate, up 6.1 per cent to £443,200.

This reflects the fact that buyers with smaller budgets are finding it harder to afford rising house prices and get mortgages as interest rates rise.

Geoff Garrett, director of mortgage broker Henry Dannell, said: “Many prospective buyers are now finding that they simply aren’t eligible for the same level of mortgage financing that was available to them just a few short months ago, with many more struggling with affordability due to a squeeze on their disposable household income, coupled with increasing mortgage rates.”

What’s behind the numbers?

While annual house price growth in the year to April was strong, the monthly figures show a much less dramatic rise, with homes in London selling for one per cent more in April than in March.

Lawrence Bowles, director of research at Savills, said: "The strong annual price growth reported in this month’s figures reflects the data no longer including a month of price falls from last year (seen between March and April 2021), rather than further acceleration now.

"As each new month’s data comes in, we gain a month’s price growth and lose the equivalent month’s price growth from last year and that can give a distorted picture of current growth trends…. After two years of significant price growth, it is only natural that we see the pace of annual growth slow.”

The two-month lag in sold house price reporting means that the current economic uncertainty and growing crisis in consumer confidence caused by soaring inflation and the threat of recession are not yet fully evident in the Land Registry figures.

The Bank of England’s agents summary also reported a slight increase in the number of homes for sale in the second quarter of this year, accounting for a slight slowing in house prices.

Tom Bill, head of UK residential research at Knight Frank, said: “Low supply put upwards pressure on house prices in April but listings have since begun to rise.

“Interest rates are now above one per cent and the Bank of England has used stark language to downplay the economic outlook, which has brought more sellers forward in the belief house prices are peaking.

“Housing market statistics may not sit comfortably alongside other economic indicators but supply and demand are still rebalancing after the distortions caused by the pandemic and stamp duty holiday.

“We expect price growth to return to single digits by the end of the year as supply builds and demand is put under pressure by rising mortgage rates and peaking inflation.”

Jeremy Leaf, north London estate agent and a former RICS residential chairman, said demand from buyers was starting to soften, which was bringing house price growth down, although other factors were stopping prices falling.

He said: “We are seeing increasing nervousness about taking on debt at a time when buyers and sellers have no real clue as to when and how the rising cost of living will start to level out.

“Nevertheless, continuing lack of choice and strong employment prospects means there is still little chance of significant price changes over the next few months at least.”

Jason Tebb, CEO of OnTheMarket.com, agreed that appetite from home buyers remained strong despite rockiness in the wider economy.

Mr Tebb said: “Although this data is a little historic, it reaffirms our own findings which show that high levels of buyer and seller sentiment continued unabated in April, resulting in average house prices continuing to rise in most regions.

“Since then, evidence of a rise in the number of new instructions means we are seeing the beginning of an inevitable rebalancing of supply and demand. Yet this will take time and until then, the ‘new normal’, an elevated version of the pre-pandemic market, continues.

“Despite considerable headwinds, including the rising cost of living and potential for further interest rate increases, the housing market continues to show remarkable resilience, with the most prepared buyers having the advantage.”

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