Central London property prices dropped almost 5 per cent in the 12 months to March, the largest annual fall in three and a half years, as the UK’s poor economic outlook and fears of a further decline in the housing market stopped wealthy buyers from committing to deals.
The price of property in prime areas of the capital dropped to £1,261 per square foot last month, down from £1,326 a year earlier — the lowest level since mid-2021, according to data provider LonRes, as values continued the decline that began in late 2022 after a buoyant 18 months.
“The steam has come out of the market. It was a bit inflated last year,” said Anthony Payne, managing director at LonRes.
Property values in high-end areas of the city, such as Mayfair and Kensington, tend to be less susceptible to the recent rise in mortgage costs as the market relies on cash-rich foreign buyers. But Payne said buyers had become more cautious over concerns that prices could still fall further as the result of a combination of factors, including concerns over the economic outlook and rising interest rates.
The discretionary nature of the central London markets has meant buyers and sellers can afford to remain in a stand-off, Payne added. Wealthy buyers with multiple homes are under less pressure to make a purchase, while sellers are often in a better position to wait out the downturn.
“The vendors are still in yesteryear,” Payne said, adding: “We’re just in that void at the moment where the two are not meeting.”
Transaction numbers in March were down by a fifth on the same month last year, while prices per square foot dipped below the three year pre-pandemic average for the first time in nearly two years, according to the data.
“Across the market, I hear that a lot of agents are quieter,” said James Forbes, director at high-end London estate agency Forbes Gilbert-Green. “My longer-term concern would be: do we maintain our position as a global financial centre? The concern for all of us in prime central London is ‘brand London’ and ‘brand UK’ remaining positive. That drives our market.”
The central London market enjoyed a boost between mid-2021 and autumn last year, sparked by the easing of Covid-19 travel restriction and foreign buyers taking advantage of the weak pound and low interest rates.
The chaos triggered by the “mini” Budget of shortlived prime minister Liz Truss last September marked a turning point as investors’ confidence in the UK fell sharply and a large number of home sales fell through.
“To invest in London you want economic and political stability,” said Richard Donnell, executive director at property search website Zoopla.
The wider UK housing market has so far defied predictions that higher mortgage costs could knock 10 per cent off house prices, with relatively small declines registered in recent months.