UK House Prices
House prices across the UK are projected to experience a seven percent decrease this year, according to the latest property market forecasts. The downward trend is expected to continue in 2024, with a further four percent decline, before a gradual recovery of 2.5 percent, three percent, and three percent over the following three years.
London’s Top-End Housing Market
However, there is a glimmer of hope for the top end of London’s housing market, where high-value properties change hands. This segment is anticipated to rebound faster than any other region in the country. House prices in the sought-after “prime central London” (PCL) area are forecasted to decline by three percent, but then stabilize in 2024.
Factors Affecting London’s Housing Market
The past year’s volatile mortgage market has had a detrimental impact on buyer sentiment, sales, and house prices, even in the most affluent parts of the capital. This is despite the return of overseas buyers. Factors such as Liz Truss’s challenging mini budget and the significant increase in the Bank of England base rate over the past 12 months have resulted in mortgage rates being three times higher than they were three years ago.
Outlook for the Future
While the luxury housing market in central London relies less on borrowing and more on cash buyers compared to other areas, this instability has still affected buyer confidence and led to slower decision-making. After initial declines this year and next, house prices are expected to gradually rise again, starting in 2025, with projected increases of 2.5 percent, three percent, and three percent over the following three years.
Rental Market in London
In addition to the housing market, London’s rental sector is experiencing its own dynamics. Rents across the city are projected to rise by another seven percent by the end of this year, outpacing the growth rate in the rest of the UK. The imbalance between rental property supply and the increasing demand to live in London has become more acute.
Impact on Tenants
Over the next five years, the average rent in London, which is already at record highs, is newly forecasted to rise by 23.3 percent, surpassing the growth rate of 22.2 percent across the rest of the UK, according to estate agent Knight Frank. The escalating rental costs in London have forced young tenants to either move back in with their parents or seek accommodation outside the capital, putting a greater proportion of their income towards rent, despite wage growth.
Supply and Demand Imbalance
Commentator Lucian Cook of Savills has raised concerns that such exorbitant housing costs will lead to a shortage of talent in London, as graduates opt for more affordable cities to settle in. However, there is evidence to suggest that the supply-demand imbalance is easing in the exclusive central areas of the capital, as vendors who are financially able to do so opt to rent out their homes while waiting for property prices to increase, as noted by Knight Frank. The agent predicts that the average rent across London will rise by 5.5 percent next year, compared to five percent in central London and five percent in the rest of the UK.