London house prices have fallen at their fastest annual rate since the financial crisis, dragging the UK property market down to its lowest levels of growth in five years.
House prices in London tumbled 0.7 per cent in the year to June 2018, marking the sharpest decline in annual growth since a 3.2 per cent drop in September 2009, according to new figures from the Office for National Statistics (ONS).
Kensington and Chelsea has been particularly hit by the London slowdown, with property prices falling 10.5 per cent in the upmarket area’s biggest monthly fall on record.
The ONS said London’s sustained slump was behind the UK’s sluggish annual house price growth, which rose by three per cent – its slowest pace since August 2013.
Chief economic adviser to the EY Item Club Howard Archer said: “Housing market activity is still relatively lacklustre and we expect it to remain so as the extended squeeze on consumer purchasing power only gradually eases, consumer confidence is relatively fragile and appreciable caution persists over engaging in major transactions.”
The UK’s annual house price growth rate has been on a downward trajectory since mid-2016, with slow wage growth and rising mortgage rates hampering buyers.
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Last month Big Four accountancy firm PwC predicted that London house prices were likely to fall as much as two per cent this year.
Richard Snook, senior economist at PwC, commented: “UK house price growth remained resilient in 2017 despite a weakening economic backdrop, but has shown signs of moderating during the first half of 2018, particularly in London. Affordability in the capital has been stretched due to three factors: a high deposit saving hurdle, increased economic uncertainty relating to Brexit acting as a drag on international investment, and reduced numbers of housing transactions due to stamp duty changes.
Yet despite the decline in London property prices, the capital still remains the region with the most expensive houses on the market, averaging £447,000 compared to the UK average of £228,000.
Savills housing analyst Lawrence Bowles told City A.M.: "The trade-off between London’s lack of affordability and its attractiveness as a centre of culture and education is tipping, with people moving to other cities because they cannot afford homes in the capital.
"We’re seeing lots of people looking outside of London now for better value – they’re moving out to the East and West Midlands. We’re expecting the rest of the country to outperform London certainly for the next five year period".
“House price growth outside of London is being supported by a continuing shortage of stock whereas the capital and the southeast can’t hide behind this excuse any longer” according to Jeremy Leaf, a north London estate agent and a former Royal Institution of Chartered Surveyors residential chairman.
Leaf added: “Price drops are continuing and reflect a new realism in the market - if you want to sell your property, it needs to stand out and price is the obvious way of doing it.”
"The London property market has gone from hero to below zero in a matter of a few years. For the capital to be in a photo finish with the North East over the past year is a stark reminder of how volatile the UK property market can be in the short term” said Jonathan Samuels, boss of property lender Octane Capital.