Two fifths of postcodes across London are registering year-on-year price falls, according to the latest Hometrack UK Cities House Price Index.
The annual rate of house price growth for the capital has slowed to +1%, down from 4.3% a year ago and the lowest annual rate of growth since August 2011.
Average house prices are predicted to be falling year-on-year by mid-2018.
By contrast, house price growth in regional cities such as Edinburgh, Liverpool and Manchester is in excess of 7% per year, driven by strong demand. House prices have also risen by over 7% in Leicester and Birmingham.
The slowdown in the capital is largely being caused by single digit price falls throughout inner London, with fifteen of the 46 local authorities that make up the London index recording price falls. The City of London (7.9%), Camden (1.9%), Southwark (1.8%), Islington (1.4%) and Wandsworth (1.2%) have witnessed the biggest downward pressure on prices in the last 12 months.
While most (58%) London postcodes are still seeing increases in house prices, the number experiencing positive growth has fallen over the last year. Hometrack expects, based on current trends, to see year-on-year house price growth move into negative territory by the midway point of this year.
House price growth outside southern England, though, remains robust and well ahead of the growth in earnings. On a nationwide basis, city house price inflation is up by 5.2% year-on-year as the rate of growth continues to diverge between southern and regional cities.
The split is clearly shown by the fact that half (ten) of the cities covered by the index are experiencing higher house price growth than a year ago, while the other ten are recording lower growth, led from the front by London, Southampton and Bristol.
Meanwhile, prices are falling in Cambridge (-1.5%) and Aberdeen (-7.7%), with Cambridge performing like a mini version of the market in the capital.
In London, the number of markets recording negative house price growth (42%) is at its highest level since the global financial crisis took hold in 2008. This has been caused by a number of tax changes negatively affecting overseas and domestic investors, as well as stretched affordability levels for owner occupiers which has been worsened further by ongoing Brexit uncertainty.
Most of these markets are falling by between 0% and -5%, with no indicator of any acceleration in the rate of price falls.
The downward pressure on house prices is it as its most stark across inner London areas, where house prices are highest and yields lowest. These are also the areas with a larger share of discretionary buyers.
According to the findings, it now takes 18 weeks to sell a residential property in inner London, nearly double that of London’s suburbs and the capital’s key commuter hubs.
“The weakness in London’s housing market has been building since 2015 on the back of numerous tax changes aimed at overseas and UK investors and growing affordability pressures facing home owners,” Richard Donnell, Insight Director at Hometrack, said.
“Sales volumes are first to be hit when demand weakens and housing turnover across London is down 17% since 2014. Sales prices are next to follow but with few forced sellers the level of price falls remains low.”
He added: “We expect the balance of markets registering price falls to increase over 2018 as prices continue to adjust to what buyers are prepared to pay. Average London house prices are up 86% on 2009 levels so there is a sizable equity buffer to absorb any price falls.
“Away from southern England house price growth remains robust in regional cities where prices have registered lower overall growth since 2009 and affordability levels are in line with their long run average.”