The Central London House Price Bubble Bursts

Further evidence is emerging that the Central London housing market bubble has burst and price falls are spreading throughout the rest of Greater London.

According to latest analysis by Home.co.uk, Prime Central London prices are still falling as the supply of properties rises and confidence in property as an investment ebbs away.

Central London locations dominate the latest list of biggest house price falls across the UK, with Walworth in the London Borough of Southwark seeing a 15% fall in average house prices between January 2014 and January 2015. House prices in swanky Belgravia fell by 10.3% over the same period and Cromwell Road in Kensington saw a slump of 8.3%. Of the 20 UK areas with the biggest annual fall in sales prices, 11 are in London.

Landlords' return on investment on Central London properties is also falling. Of the 15 UK locations recording negative real % yield, which occurs when the value of the property depreciates by more than the annual rent, 12 are in Central London. In January 2015, landlords with a property in Walworth recorded a negative real % yield of 11.3%, while in Belgravia the negative real % yield stood at 7.1%.

London's biggest property price falls

  Change Mean average 2-bed property price (Jan 2014) Mean average 2-bed property price (Jan 2015)
Walworth -15.0% 835,855 710,294
Belgravia -10.3% 2,284,525 2,048,643
Cromwell Road -8.3% 1,597,505 1,464,219
Elephant & Castle -8.2% 877,104 804,982
Kennington -8.0% 1,051,378 966,682

Central London flat prices are among the hardest hit. On average, the price of a flat fell by 9% in Central London between January 2014 and January 2015. Over the same time, the number of flats for sale in Central London has increased by 64%.

Since November 2013, the price of a typical flat in Belgravia has fallen 20%, from £1,995,000 to £1,600,000. A similar price correction has already spread into Islington, where the typical asking price of a flat has dropped 11% since March 2014. This represents a loss of £85,000 for flat buyers in Islington over the last 10 months.

There is further evidence that price falls are rippling out to more remote areas of Greater London and look set to spread further into the South East. The spectre of negative equity is looming large for recent buyers.

Further out in Greater London, Holloway flat prices peaked in May 2014 but have since dropped by 13%, while the typical time on market for flats in the area has more than doubled. Meanwhile, Muswell Hill in North London has seen flat prices fall 4% since October last year.

Doug Shephard, Director at Home.co.uk, says: "Optimism in the UK housing market is still riding high in the rest of the country, but it comes as a shock to many to learn that prices are crumbling in the most expensive streets in London.

We are keen to track these price movements as they may soon have a knock-on effect for the rest of Greater London and, later, the Home Counties.

Prices in Central London went up too far, too fast during 2012-13. The same fate then befell the rest of London last year. Now many home buyers and investors are paying the price for their overenthusiasm.

The questions that remain to be answered are: When will the price falls stop in Central London? And will these hefty price corrections ripple out into the rest of Greater London and the South East?

In a synthetic property boom and bust such as London has experienced, on account of ultra-low interest rates and other stimulus measures, it is hard to imagine any possible remedial action on the part of the government. Prices this time may simply have to fall back to a more natural equilibrium."

Source: Home.co.uk Home Asking Price Index.

Notes for Editors

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