London’s property market is booming

Despite weakening growth in the capital, where values are around 80% higher than in 2009, there are still plenty of good property investment opportunities available in London, especially in areas where there are not excessively high house prices, new research shows.

According to the latest Hometrack UK cities house price index, which tracks price movements across the UK’s 20 biggest cities, London, which is among the cities that have been driving UK house price growth over the last two to three years, is now seeing a significant slowdown, while large regional cities, like Manchester, Birmingham and Newcastle, continue to register robust and sustained levels of house price growth.

But a closer look at the housing market in London shows that homes prices in some areas are still rising at an impressive rate, especially in lower value markets.

The fresh analysis by Hometrack has identified areas such as Peckham, Walthamstow and Clapton, as places that are outpacing the rate of inflation in the capital’s prime, central markets.

Hometrack says that the impetus for house price growth continues in the lowest price bands, where prices are currently increasing by 8% year-on-year, while prices at the upper end of the market are currently falling by 5%.

Overall London house price growth is heading towards low single digit growth by the end of 2017.

The study reveals that since 2009 house prices growth in lower value market has outpaced the market in prime areas of central London.

Markets such as Walthamstow (133.2%), Clapton (133.1%), Peckham (129.9%) and Leyton (128.4%) have grown faster than traditional prime London markets like Hampstead (86.9%), Fulham (87.5%), Mayfair (88.3%) and Islington (89.4%).

The report finds that the timing and scale of house price increases over the last eight years has varied dramatically between price bands.

The markets with the highest 30% of prices have seen the fastest growth in the early phase of the recovery (pre-2012), as equity rich overseas buyers and wealthy domestic buyers bid up the cost of residential homes in high value central areas of London.

In contrast, growth in the lower price bands only began to pick up pace from 2013 onwards, when the UK economy began to improve and mortgage rates fell.

For example, between 2009 and 2012 house prices rose by 52% in the most expensive tenth of the market, compared to just 8% in the lowest tenth. But in the three years following, the momentum for house price growth shifted, with the lowest value markets, areas such as Walthamstow, Clapton and Peckham, registering growth of 64% against just 22% in the upper price bracket.

Richard Donnell, insight director at Hometrack, commented: “As a global city London’s housing market covers a wide range of sub-markets with different drivers of demand.

“Average values in the most expensive areas of London are five times higher than in the lowest value areas and the top three price deciles registered the highest growth in the early phase of the recovery before 2012.

“This was a result of strong demand for central London property from equity rich overseas buyers who saw London as something of a safe haven from global uncertainty.”

Donnell continued: “In contrast, the lower price deciles, covering homes for the ‘average Londoner’, only started to register stronger growth from 2013.

“An improving economic outlook and mortgage availability, together with lower borrowing costs, boosted demand. House price inflation followed the flow of demand which moved out from central areas as buyers sought better value.

“Price growth pushed down loan-to-values, creating additional borrowing capacity and the pace of this growth has now outpaced higher value markets in percentage terms between 2009 and 2017.”

With a record high price to earnings ratio in London of over 14 times stretched affordability levels are impacting demand and reducing the upward pressure on prices, according to Donnell. This has been exacerbated by tax changes that have dampened investor demand.

“House price growth is now slowing rapidly across London. The annual rate of growth is currently 8% year-on-year in the lowest value markets while prices are falling by 5% year on year in the most expensive markets,” he added.