Is this the End of Rising House Prices?
UK property prices have hit their lowest slump in five years according to the Office of National Statistics. The overall decline is driven by falling property prices in London where there has been four consecutive months of declining prices.
London prices continue to drag down growth with a 0.4% decline from May 2017 to May 2018, making the average property price £478,853 in the capital. Other areas across the UK are keeping things at secure equilibrium. The east Midlands have had 6.3% growth and the West Midlands are averaging 5% from May to May 2018. While most regions in the UK has seen significant, record-breaking growth, the regions around London are steady at an average 2% growth or lower.
For the first time in six years, millions of flat owners have no growth on their properties value. The primary reason for the stagnating flat prices is that the majority of them are in London and the south and east of England. In regions where property prices are rising, buyers are more likely to purchase a home rather than a flat.
Although annual house price growth in London has been negative since February and declining since last summer, the prices are still out of reach for first-time buyers and young people hoping to get on the London ladder. This also has an effect on people looking to purchase their next home, as if they can't find the property in the right place for the right price, they won't list their property, keeping prices high and transactions decreasing.
Overall, the number of transactions across the UK in the property market are bleak. New Land Registry data showed that transactions decreased by 20% from March 2017 to March 2018 to 58,203 total transactions. During the same period, transactions fell in London to 6,180, an almost 30% decline. Transactions in Scotland are also down annually by 16% while North Ireland and Welsh are down 12.4% and 13.8%.
London Prices Predicted to Continue Declining
If one thing is certain it's that regional housing prices are uncertain from month to month. However, the slow and steady decline in London is showing an underlying weakness in the market and this if preventing many sellers from being able to sell their house fast. With the uncertainty of Brexit, strained finances for young people and higher borrowing cost from the Bank of England, an upward swing for London's property market doesn't appear to be in the near future.
A senior economist at PWC predicts an overall 1.7% price decline in London and 0.2% across the UK as a whole but does not predict a collapse. Overall, the lower demand is forcing sellers to be more realistic with their prices. As potential buyers are nervous to make a big purchase as a result of Brexit and lower wages, a low supply won't sustainably fuel the market.