The summer slowdown was most pronounced in the capital, resulting in falls of -2.8% and -1.5% in August and September respectively, and October sees a return to a growth trend which started in January this year.
Such a significant monthly increase in the capital at this time of year is not without precedent.
In October 2009, average asking prices in London rose by +6.5% following a similarly low level of activity from sellers over the summer months creating some volatility. This month’s strong recovery means prices are now +5.6% (+£28,852) up on July’s all-time high of £515,379, pushing the year-on-year increase in London to +13.8% (+£66,161).
Miles Shipside, Rightmove director and housing market analyst comments:
“Fewer sellers coming to market in the capital during the traditional summer recess resulted in total price falls of 4.3% over August and September. However, this month’s rebound in the number of sellers brings the quarterly growth figure back into line with the recent trend at around 2% a month. Although not sustainable in the longer term, some agents currently report there is a buying frenzy in parts of prime inner London, with available stock so low that their shelves are now bare. Unsurprisingly, many of this month’s best performers are boroughs in inner London”.
To satisfy at least some of the demand, London needs an increase in supply from a combination of more new-build properties and more existing owners coming to market. The number of sellers in the capital this month is up 15% compared to last, though given that September was 12% down on August, the recovery is modest and from a low base. The situation is exacerbated by overseas investor demand swallowing up much of the new-build supply, adding to shortages and creating upwards price pressure.
Shipside explains:
“London is a world city where overseas investors see real estate as a safe asset, at a time when safe assets are increasingly scarce, and developers are building and marketing a lot of one and two bedroom flats to meet that demand. While they can achieve volume sales at premium prices, this eats up a much needed source of fresh supply and drags up existing property prices at an even faster rate”.
There is a long-standing imbalance between supply and demand in London, and as a result both the average price and the entry price are high. Hence, phase two of the Government’s Help to Buy scheme is likely to bypass many buyers in the capital and mainly benefit those in other regions. Average asking prices in even the more affordable outer London boroughs (£461,937) are more than twice the average in the rest of England and Wales excluding London (£226,861), and prime inner London property has reached stratospheric levels (£937,110), yet the average London wage is only 60% higher than in the rest of the country.
Due to the mismatch between average wage levels and the high price of property in the capital, Rightmove research indicates that 80% of those who intend to buy in the next 12 months will put down a deposit of 10% or more. While this widens their target range of property, it means that the current range of 5% deposit Help to Buy products is of no benefit to many Londoners for whom the income to service a mortgage is a greater challenge than the deposit required.
Shipside observes:
“In London, the buying power required to get onto or move up the housing ladder means you have to tap into the Bank of Mum and Dad rather than buy courtesy of a helping hand from Uncle George. Indeed, nearly two in five would be first-time buyers in the capital state that they expect to receive parental assistance. The added benefit of a larger deposit is that the interest rates on offer handsomely beat those available through Help to Buy phase two. Buyers on average wages who are restricted to a 5% deposit Help to Buy mortgage will be forced to test the upper end of their lenders’ affordability ratios.”
While London grabs the headlines this month, it is also worth noting some significant patterns in other regions. A bubble seems a long way off in the majority of regions, with two having recorded monthly falls (West Midlands and Wales), five still negative year-on-year (North, North West, Wales, West Midlands, South West), and seven in ten regions recording annual price increases which lag behind inflation (all bar London, South East and East Midlands are below the 3.2% annual rate of RPI). The South East is the natural recipient of increased demand given the extreme supply shortages in London, as well as having its own needs to satisfy. Property is coming to market at +2.3% more than last month’s asking prices, though it remains -2.1% behind the peak of £330,612 achieved in July this year.
Shipside comments:
“With the London market failing to provide the range of affordable properties its growing population needs, the South East is experiencing upwards price pressure as demand spills over. With an average price of just over £300,000, a commuter-belt property is in the cross hairs of Help to Buy assisted purchasers unable to afford the London market. Help to Buy will give some people a leg up onto the South East’s property ladder, but it also needs to spur more first-time movers to trade up to increase property supply and temper future price rises”.
