The prime central London property market has been one of the hottest investments of the past five years, but nowthere are signs that buyer interest is melting away.
Land Registry figures show that prime central London house prices fell a hefty 11.9% in the second quarter of this year, compared to the first three months.
Transactions in prime central London fell 28% to 5,174 for the year, the lowest figure since 2009.
Capital Crunch
This isnt isnt the only data pointing towards trouble. New figures from property firm LSL showLondon sales in June down13% year-on-year, with prime hotspots once againthe worst afflicted. Inthe most expensive boroughs of Kensington and Chelsea and Westminster,year-on-year sales are down 33% and 31% respectively.
The slowdown isnt confined to crazy runaway prime central London. Price growth is slowing across the capital, up a feeble 1.8% over the last year, LSL says. Out of 10 regions in England and Wales, only the North and Wales are growing at a slower pace.
End Of The Foreign Affair
Few ordinary Londoners will be surprised by this. Most werepriced out of the market long ago. Those lucky enough to get on the capitals housing ladder before prices went stratospheric are wondering whether to pocket their profits andseek peace inBirmingham.
London has been hit disproportionately hard by Chancellor George Osbornes new stamp duty regime, which hikedtransaction costs on more expensive properties. The rise of sterling against the euro and other currencies has also deterred foreign buyers, many of whom are now seeking cheaper safe havens for their dodgy money. The ruble collapse has hitRussian buying power.
Even the Conservative general election victory in May, which sunkthe proposed mansion tax, has failed to turn sentiment around.
Given todays sky-high prices, domestic demand cant plug the gap. Some are even claiming the unthinkable, that London is now a buyers market.
Trouble Ahead
London once spearheaded UK property growth, but for now it has run out of poke. The rest of the UK continues to push on, growing 4.4% over the past year, but it too faces challenges.
First-time buyers are disappearing, their numbers down 27% in the year to July, according to e.surv. Chancellor George Osbornes recent crackdown on higher rate tax relief for buy-to-let could squeeze another source of demand, from amateur landlords. And of course interest rates are set to rise at some point, pushing up mortgage costs foroverstretched borrowers.
Property is more unaffordable than it has ever been.The average homein England and Wales costs 8.8 times local earnings, higher even than in 2007, immediately before the financial crisis. The long-term average is just five times earnings.
Where London leads, the rest of the UK looks set to follow. Prices dropped 0.1% in July, according to Halifax, and althoughactivity appears to have picked up in August, the market is on a knife edge.
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