The average London house price was around £20,220 less this September than the previous year, as higher interest rates make mortgages pricier and homes less affordable for buyers.
Property values have fallen 3.8 per cent in the capital compared to a 5.3 per cent drop across the UK as a whole, Nationwide Building Society said.
A house in London now costs £514,325 on average, compared to £534,545 in September 2022.
But fears of – or hopes for – a house price crash are “unrealistic” according to experts.
“It’s unlikely that we experience a full house price crash, said Anna Clare Harper, CEO of sustainable investment adviser GreenResi.
“Firstly, this is due to the ‘necessity’ of housing. We all need a roof over our heads. Secondly, a large proportion of the market are owned outright, and they are unaffected by mortgage interest rates.”
The Nationwide House Price Index only records housing market activity for homes purchased with mortgages, so cash buyers aren’t included.
House prices may not fall for much longer
“In our offices, we are not seeing talk of a market correction – rather, promising signs of falling mortgage rates, though modest so far are encouraging viewings and helping to keep existing sales alive,” said Jeremy Leaf, north London estate agent and a former RICS residential chairman.
As London sellers become more prepared to accept lower offers, it’s becoming something of a buyers market – for those who can afford it.
“Successive increases in base rate and lender nervousness have meant those with cash have been playing a more significant role now that buyers continue to hold sway,” said Leaf.
Some experts suggested however that the house price downturn may only have a few months left to run, amid rising wages and signs that fixed mortgage rates are easing.
Tom Bill, head of UK residential research at Knight Frank predicted that houce prices will start rising again in 2024.
“We think most of the UK’s house price correction will happen this year and modest single-digit annual growth will return after the next general election.”
Days of rock-bottom mortgages are done
Although the Bank of England’s decision to hold interest rates at 5.25 per cent in September has encouraged mortgage providers to get more competitive, a return to low interest rates is unlikely.
“The days of rock-bottom rates are long gone and borrowers need to get used to paying more for their mortgages,” said Mark Harris, chief executive of mortgage broker SPF Private Clients.
“While a trend is developing among lenders with regard to mortgage rate reductions, pricing is still rather higher than many have grown used to over the past few years. Those buyers relying on mortgages are inevitably going to be more price sensitive on the back of ongoing affordability concerns.”
Mortgage rates rises have made housing increasingly unaffordable, said Nationwide, as homeowners now have to sink over a third of their wages into mortgage payments.
“Housing market activity remains weak, with just 45,400 mortgages approved for house purchase in August, circa 30 per cent below the monthly average prevailing in 2019 before the pandemic struck,” Robert Gardner, Nationwide’s chief economist.
“This relatively subdued picture is not surprising given the more challenging picture for housing affordability,” he explained.
“For example, someone earning an average income and purchasing the typical first-time buyer home with a 20 per cent deposit would spend 38 per cent of their take home pay on their monthly mortgage payment – well above the long-run average of 29 per cent.”
Interest rates pause could ease mortgage pressure
But signs that fixed mortgage rates are easing means it’s not all doom and gloom for those hoping to take advantage of falling prices and get onto the property ladder.
“Investors have marked down their expectations for the future path of Bank Rate in recent months amid signs that underlying inflation pressures in the UK economy are finally easing, and with labour market conditions softening,” said Gardner.
“This in turn has put downward pressure on longer term interest rates which underpin fixed rate mortgage pricing,” he said.
“If sustained, this will ease some of the pressure on those remortgaging or looking to buy a home.”
Matt Thompson, head of sales at London-based estate agent Chestertons, said his office had already seen clients comforted by the base rate pause.
”We have seen a positive response from buyers in September who felt more secure to make financial decisions and resume their property search,” said Thompson
“Understandably, buyers who are now entering the market are particularly careful about their budget and factor in any future rate hikes as well as the cost-of-living. As demand for properties in the capital continues to outstrip supply, the market remains competitive.”
While house prices have fallen across the UK, the market has remained strongest in Northern Ireland and the North East. The South West has seen the biggest drop in property prices.
Here’s how London compares to every other UK region.
Average house prices with annual decrease
Region |
House Prices in Q3 |
Annual Decrease |
Northern Ireland |
£180,668 |
- 1.8 per cent |
North East |
£156,051 |
- 2.0 per cent |
West Midlands |
£241,130 |
- 2.4 per cent |
North West |
£205,553 |
- 3.8 per cent |
London |
£514,325 |
- 3.5 per cent |
Scotland |
£176,814 |
- 4.2 per cent |
Outer Metropolitan (includes parts of Buckinghamshire, Hertfordshire and Surrey) |
£416,365 |
- 4.4 per cent |
Yorkshire and the Humber |
£198,030 |
- 5.4 per cent |
Outer South East (includes parts of Bedfordshire, Oxfordshire and East Sussex) |
£334,215 |
- 5.4 per cent |
Wales |
£202,065 |
- 5.4 per cent |
East Midlands |
£228,373 |
- 5.5 per cent |
East Anglia |
£273,066 |
- 5.6 per cent |
South West |
£301,600 |
- 6.3 per cent |
