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  • Writer's pictureElliot Leigh

Decline in London house prices as mortgage rates surge

According to a recent study conducted by Zoopla, London experienced a slight decline in house prices this month, making it one of the few regions in the UK to see a decrease. The data also revealed an interesting trend where the rise in mortgage rates has started to impact asking prices. More than 42% of sellers are now accepting offers that are 5% or more below their initial asking price, while 15% are agreeing to discounts of at least 10%. On average, the price reduction stands at 3.8%.

Surge in mortgage rates affecting buying power

The surge in mortgage rates has directly affected buyers' purchasing power. As mortgage costs have skyrocketed due to the Bank of England's base rate increases, buyers are finding themselves in a position where they have to negotiate harder to secure a deal. This is significant because mortgage transactions account for 70%. The recent shift from 4% to 5% in mortgage rates has resulted in an 11% reduction in buying power. If mortgage rates reach 6%, the reduction in buying power is expected to rise to nearly 20%.

Although rates are already approaching this level, the impact on buying power will not be immediate. Buyers can offset some of the rate increases by increasing their deposit or extending the term of their mortgage.

Unfortunately, not everyone has access to these options, and many buyers, especially first-time buyers, have been unable to enter the property market. The data indicates a 14% decline in the number of buyers compared to the same period last year.

Richard Donnell, Executive Director at Zoopla, explains, "London's housing market is the most expensive in the UK, and higher mortgage rates have been affecting buying power, resulting in a modest average price decline of 0.3% over the past year. As mortgage rates approach 6%, the resilience of the London housing market will face further challenges."

London boroughs affected by price changes

Among the local authorities in London, Tower Hamlets experienced the largest decrease in house prices with a reduction of 1.5%, equivalent to £7,460. This brings the average house price in the borough to £479,200. Hackney followed closely with a 1.1% decrease, amounting to £6,720, resulting in an average house price of £562,700. Camden also saw a 1% decrease, reducing house prices by £7,470, making the average home price £751,100.

On the other hand, some of the outer boroughs defied the overall trend and experienced slight increases. Bexley had a modest increase of 1.1% (£4,530), bringing the average property price to £401,200. Havering and Barking & Dagenham both saw a 0.6% rise, with increases of £2,470 and £1,870 respectively. The average house prices in these areas stood at £424,400 and £337,500.

Surge in houses on the market

In addition to inflation and rising mortgage costs, another contributing factor to the decline in prices is the sudden surge in housing supply. There has been an above-average increase in the number of homes listed for sale in the last four weeks, with 18% more listings compared to the five-year average (although some of these may have been affected by the pandemic). The scarcity of homes has often been cited as a driving force behind rapid house price growth, and the inverse is also true. Increased supply provides buyers with more options giving them room to negotiate and drive down house prices.

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