First-time buyers in London are taking a step back to wait for a reasonable deal, causing a lack of demand in the capital, estate agency James Pendleton has found.
Sales of flats across London have dropped 47% since June 2016. The over-estimation of the London market means buyers are reluctantly waiting for prices to drop to more desirable levels.
Fluctuations in buying activity among first-time buyers – despite flats being a mainstay in the first-time buyer market – can cause a ripple effect across the entire market as a whole, the independent estate agent warned.
Some 4,709 flats were sold in July 2016. However, the volume dipped to 2,494 in July this year, according to the latest data.
“This is a classic sign that first-time buyer demand is sensitive,” Lucy Pendleton, founder director of James Pendleton, said. “There is a temptation to wait on the side-lines while prices become more realistic.”
“When that happens, it can only be a good thing, because housing markets are most stable when transactions are healthy across the board,” she said.
Other property types experienced a drop also, though not as severely. The number of detached properties sold fell 5% in a year to 143 in July 2017. Terraced houses fell 8% to 1,476, while semi-detached transactions were down 1% to 516.
However, sale prices crept up over the same period, with flats increasing by 2%, terraces rising by 3%, semi-detached properties growing by 13% and detached houses up by 5%. Sales of flats were 43% down from June 2016 to June this year.
Despite first-time buyers borrowing 8% more in the second quarter of 2017 compared with the previous year, these fresh results suggest that the market is overdue a correction in property prices.
This aligns with the notion first-time buyers at the base of the market are increasingly unable to purchase a property, while those in better financial positions are ascending the ladder, with many opting for the Help to Buy scheme.
Uncertainty in the housing market across the capital has led to first-time buyers being unable or unwilling to meet valuations, claiming prices are simply too high.
Pendleton believes that after experiencing such strong growth, a ‘reality check’ for London is in order. “The scale of this drop in sales of flats tells me it is now more likely to be inevitable,” she said.
“Solid numbers of people are showing some reluctance at current prices and signalling to all the other market participants they can’t transact unless they come back down to Earth,” she concluded.