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Finance
26 Jan 2021

London house prices are on the rise – will that continue?

mohammed
mohammed

London house prices are on the rise – will that continue?

There’s conflicting news about the state of the housing market in London.

Firstly, there are numerous reports suggesting that house prices are on the rise in the capital.

However, paradoxically, there are also stories of London workers leaving the city in droves due to the impact of the pandemic.

Here we’ll go through the facts to try and make sense of it.

House prices

The cost of London flats and maisonettes have risen by 9.0% year-on-year to £442,304, according to Herddle analysis of government data.

Meanwhile price inflation was even more rapid in prestigious areas of London.

According to Thirlmere Deacon analysis of Halifax data, London’s Islington was the fastest rising area of the UK, where property prices increased by 13.4% to £727,922.

Meanwhile data from the Office for National Statistics said that Kensington and Chelsea had house price inflation of 28.6% to an average price of £1.5million.

Influence of stamp duty

Without the stamp duty holiday these price rises may not have happened.

Thanks to the stamp duty change people don’t have to pay the buyer tax on the first £500,000 of the property sale, up from £150,000. This is a big change, saving people up to £15,000 in tax.

With this change, buyers purchasing more expensive properties have been given a big incentive, which explains why London price rises have, in some areas, outstripped the rest of the UK.

First-time buyers vs second steppers

First-time buyers don’t have the same incentive as other types of buyers. They already didn’t have to pay stamp duty on the first £300,000 of a property price when spending under £500,000.

Therefore the market is likely to have been dominated by second and third steppers, as well as investors, trying to save money on tax.

This may have skewed the house price stats and resulted in strong competition at the mid and top end of the market, compared to cheaper properties suitable for first-time buyers.

Rental market

While some of the fancier London neighbours have seen surging interest from buyers, you can’t say the same for renters.

According to a report from data company LonRes, that there are 75% more luxury properties up for rent in central London than a year earlier.

You have to wonder whether this lower rental demand will filter into lower house prices throughout 2021.

Indeed, it surely makes less sense for investors to shell out big money on properties if they’re battling to find suitable tenants.

House price plateau

Once the stamp duty holiday ends it’s expected that the housing market will cool down, potentially bringing average property prices down.

There’s lots of talk in the housing market about a potential extension to the holiday, but currently it’s set to finish at the end of March.

If prices did drop a bit after that time, few would be shocked.

Conclusion

While house prices have risen in London, despite people leaving the city, it’s unlikely this will continue for long – good news for those who want to get on the ladder.

The stamp duty holiday has skewed the market, resulting in strong competition at the mid and top end of the market that’s likely to lessen significantly from April.

While there’s a lack of tenant demand in prime areas as it stands, the good news for investors is this is unlikely to remain the case forever.

Once the UK is out of the worst of the pandemic you’d expect renewed demand for people to live in London – it still has a lot of history and pull power and that’s not going to change in the long run.

In the short-term however, we might see prices slide back throughout 2021.
 

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