London Housing Affordability Improves to 2014 Levels Amid Market Shifts
Affordability of homes in London has improved to levels last seen in 2014, marking the city's most accessible housing market since the peak of inaccessibility in 2016. According to recent data, the ratio of the average house price to average income in London has decreased to 13 times, a drop from the peak ratio of 15 times seen in 2016.
Typically, mortgage providers offer loans up to 4.5 times an applicant's income. This new information also highlights London as the front-runner in housing demand nationwide, with a 21 percent increase compared to last year. Despite this increased interest, the capital's housing prices have seen a modest annual decline of 1.1 percent.
The decrease in housing prices, combined with an increase in earnings, signals a boost in London's housing affordability, reaching its most favourable point since 2014. This is encouraging for potential homebuyers, although the challenge of elevated mortgage rates persists, having doubled since 2021 and far exceeding the 2014 levels when the Bank of England's base rate was notably lower at 0.5 percent.
The surge in demand for London properties is reflected by a 22 percent increase in the housing supply over the past year, offering buyers more options. This rise in interest spans across both central and suburban London, indicating a rejuvenation of the city's property market after several stagnant years compared to national trends.
Since 2016, property prices in London have risen by only 13 percent, in stark contrast to a 34 percent rise nationally. This discrepancy is attributed to the impacts of tax reforms, the Brexit decision, and changes in work practices since 2020. Furthermore, the spike in mortgage rates disproportionately affected London, especially impacting the flat market, where prices have barely increased by 2 percent since 2016.
Despite the active market, sellers in London and the South-East are often accepting offers 10 percent below their asking price to close deals, a trend more pronounced than in other regions of the UK.
This suggests the importance of realistic pricing for sellers aiming for successful transactions. While the market shows signs of activity, the outlook does not predict a rise in prices for 2024, emphasizing the necessity for sellers to remain realistic and for buyers to seek value.
An analysis at the borough level shows a general trend of price reductions across London, bringing its average property price to £331,400. Conversely, Wandsworth experienced the most significant price fall, with a 3.5 percent annual decrease to £661,400, illustrating the varied impact on different areas of the city.
