The cost of the average home in the capital — now £529,737 — has risen by 12.7 per cent since July 2016 when average prices were £466,713. London growth has been far outpaced by the rest of the country and is half the rate of the second slowest region, the northeast.
This is due to a set of conspiring factors, according to experts at Knight Frank, from eye-wateringly high house prices in London compared to other areas, to Brexit uncertainty and the escape to the country during the Covid-19 pandemic.
The Brexit referendum came in the second half of the post-global financial crisis property cycle. London had ferociously led the country’s housing market recovery after the crash of 2008 and peaked with annual house price growth of as much as 20 per cent in the year to June 2014.
This overheated market, dubbed a property price bubble, started to slow following the introduction of stamp duty hikes at the end of 2014 which hit the most expensive parts of the country. Brexit compounded this cooling as overseas investors took stock of the political situation and British people felt uncertain about the economy.
The disparity between the pace of house price growth in London and the regions became even more exaggerated when the pandemic swept across the country as buyers went in search of more space for their money – encouraged by the Chancellor’s emergency stamp duty holiday.
“London’s underperformance pre-dates Covid but was accentuated by the escape to country trend. It has primarily been a result of the affordability squeeze in the capital, with more affordable parts of the UK experiencing stronger price growth in recent years,” says Tom Bill, head of residential research for Knight Frank.
The region with the fastest house price growth over the last six years has been the East Midlands (42.3 per cent), followed by the North-west (38.7 per cent) and the West Midlands (37.7 per cent). The expensive south-east commuter belt was the third slowest (25.9 per cent).
This divide between the most expensive pockets of Britain versus the cheaper ones, is also evident within the polycentric London market with Havering, Barking & Dagenham and Bexley, recording the fastest house price growth over the last six years of all boroughs, with rises of 26 per cent, 25.4 per cent and 24.7 per cent, respectively.
Prices in the luxury core of the capital (known as prime central London and covering areas such as Mayfair, Knightsbridge and Belgravia) have fallen 14 per cent since Brexit, demonstrating a fall in overseas investment due to the political uncertainty of Brexit and the travel ban during the pandemic.
Bill also puts this down to “the emergence of a more adverse tax landscape and compounded by political volatility that followed the close general election result of June 2017,” when the Conservative’s Theresa May won narrowly over Labour’s Jeremy Corbyn.
“Prime central London remains in steady recovery mode, which will be accelerated by the return of meaningful numbers of international buyers,” says Bill.
Looking to the future he adds, “The pandemic magnified the trend of people moving across the country as buyers searched for more space but in five years’ time, I imagine more will be moving out of London because you get more bang for your buck rather than in anticipation of further lockdowns.”