Why are London house prices falling?
House prices in London have fallen this month as higher taxes hit both domestic first-time buyers and international non-doms.
Inner London prices fell by 2.1 per cent in July month on month, according to Rightmove’s latest house price index, while overall prices in the capital fell by 1.5 per cent.
Rightmove noted that April’s increase in stamp duty, which removed stamp duty relief for first-time buyers, has hit buyer affordability.
The median first-time house purchase tipped over the threshold for paying stamp duty in April, meaning the average buyer needed to shell out an additional £6,250 – something only 15 per cent of first-time buyers in London can afford, according to a survey from Fairview Homes.
Buyer affordability in the capital is already dire: London has a house price to earnings ratio of 8.22, making it one of the least affordable places to live in the country, against a national ratio of 6.55.
In fact, the relative affordability of cities like Birmingham, Bristol and Manchester has pulled buyers from London.
This factor, alongside the return of sellers who delayed moves due to market uncertainty, has left a glut of houses for sale in London and shifted the scales in favour of buyers.
The number of homes for sale is 16-19 per cent higher than a year ago, according to Rightmove.
“There’s an increase in people choosing the rest of the UK over the capital [and] the value of properties in these areas is dropping significantly.” Dave Sayce, co-founder and managing director of Compare My Move, said.
“Unless prices drop significantly, these homes are not viable for the average person to buy,” he said.
Inner London prices see biggest hit
Changes to non-dom tax rules and uncertainty surrounding future tax changes are also more likely to affect the housing market in London than elsewhere in the UK, due to the significant international interest the city attracts.
International buyers, who have traditionally been attracted to the capital by the generous tax scheme and UK perks like schooling, have been increasingly put off the city by the loss of those perks.
Prime Central London values fell by 3.7 per cent in the year to June, according to Savills.
“On the ground, we have seen the number of movers from London slip back as the commuter belt contracts and demand is more focused on London’s suburban markets,” Lucian Cook, head of residential research at Savills, said.
“That being said, the number of properties going under offer across the board remains higher than last year, as needs-based buyers continue to drive momentum.”
Prices in the prime markets of central London are now 22.4 per cent below their 2014 peak, Savills said.