London's affordability crisis: after years of overwhelming house price hikes buyers will welcome news that prices are finally coming down
The first sign that London home owners are responding to the capital’s affordability crisis has emerged with new figures showing average asking prices have finally started to drop.
After years of continuous growth, prices being sought in Greater London are down 1.6 per cent year on year. The average asking price is now £544,103 according to home.co.uk. It appears vendors have started to accept they must lower their sights if they want to secure a sale.
The news comes amid increasing concerns about the viability of London’s housing market, where years of price hikes have been overwhelming for both first-time buyers and second steppers.
It would take more than 18 years for a typical single Londoner to save a 15 per cent deposit to buy a home, according to research from Hamptons International. Even a couple saving together would take more than 11 years.
Online estate agent eMoov confirms that average house prices in London are at least 12 times the average wage in the city. The largest gap exists in Hackney where exponential house price growth since the recession means the average property now costs £575,511 — that’s 17.03 times the average local wage of £33,800. Homes in Brent and Haringey cost more than 16 times local average wages.
The dichotomy between what buyers can afford and what vendors would like to be paid for their homes has led to a dramatic slowdown in the number of property transactions in London. According to the Bank of England the number of new home loans plummeted in March to its lowest level in six months.
The problem is particularly acute in the most expensive areas. LonRes, which tracks the market in prime central London, says sales fell by more than 25 per cent year on year in the first quarter of this year.
“House prices have stagnated over the past three months,” agrees Martin Ellis, housing economist for Britain’s biggest mortgage lender Halifax. “Housing demand appears to have been curbed in recent months due to deterioration in housing affordability driven by the sustained period of rapid house price growth during 2014 to 2016.
HOUSING ACTION PLAN
In response to the obstacles faced by novice buyers, London Mayor Sadiq Khan has announced plans to develop up to 5,000 new affordable properties, the majority aimed at first timers. He will invest £115 million in the project, in partnership with Hyde Housing Association.
The Mayor describes the current situation as “simply unacceptable” but he also warns that solving the housing crisis “will be a marathon and not a sprint”.
Lucian Cook, director of residential research at Savills, agrees that provision of new homes, including affordable properties, is one way to solve the crisis — although the numbers needed are huge. “We calculate that about 42,000 homes will be built in London this year,” he says. “The need is about 62,000.”
He believes that the affordability crisis will continue to suppress house price growth in the capital. “We have had a very long bull run in London house prices,” he adds. “We have never outperformed the rest of the UK so much or for so long, and that has consequences.”