London home owners were today warned of a 10 per cent slump in property prices by the autumn as higher interest rates send mortgage payments soaring.
Leading City forecaster Samuel Tombs, chief UK economist at research firm Pantheon, said the capital is particularly vulnerable to a slump because London buyers have to take on such large loans to scramble on the property ladder.
In a UK Housing Watch analysis of the market he said prices nationally would fall eight per cent “peak to trough... with the bottom coming in the autumn”.
But he predicted that the capital would see a bigger fall of around 10 per cent as “higher mortgage rates will have a bigger impact on affordability in London due to very high loan to income ratios”.
The forecast comes as Britain’s biggest mortgage lender, Halifax, today revealed that London prices flatlined in the year to March with growth of just 0.1 per cent.
Kim Kinnaird, director of Halifax Mortgages, said: “While the path for interest rates is uncertain, mortgage costs are unlikely to get significantly cheaper in the short-term and the performance of the housing market will continue to reflect these new norms of higher borrowing costs and lower demand. Therefore, we still expect to see a continued slowdown through this year.”
It follows data from building society Nationwide last week showing UK house prices down 3.1 per cent year-on-year last month — the largest annual decline since July 2009.
Online property portal Rightmove today told the Standard all its indicators pointed to a rapidly cooling market since Christmas as strapped buyers balk at the prices being asked by sellers.
The percentage of London properties reduced in price has increased from 29 per cent last year to 38 per cent now. Meanwhile demand is 22 per cent lower than this time in 2022, according to Rightmove, and the average time to find a buyer in London is up to 70 days, from 57 days last year.
Latest figures from the Land Registry show prices in London still close to their all time highs at an average of £533,986 in January, up 3.2 per cent year on year, after a post lockdown bounce in the market last year.
But agents and brokers fear that extra mortgage costs will inevitably take a scythe to demand at a time when thousands of families are grappling with big cuts in their living standards.
The Bank of England has hiked rates 11 times since December 2021 in a desperate battle to curb inflation. The Bank’s official lending rate now stands at a 14 year high of 4.25 per cent but City economists fear that at least one more rise will be needed to bring still double digit prices rises under control.
Property owners have been largely shielded from interest hikes to date because the vast majority are on fixed rates that do not move in line with the Bank of England.
However, an estimated 1.4 million of these are expected to expire by the end of the year — with a peak between April and June — leaving borrowers exposed to hefty increases in their monthly bills at a time when family budgets are already stretched by the cost of living squeeze.
An owner with a typical £250,000 London repayment mortgage with 20 years left to run and having to replace a two per cent fixed rate deal with one priced at four per cent will see their monthly repayments leap by around £250 from £1,265 to £1,515.
Other market commentators such as agents Knight Frank have also predicted double digit falls in London but most have said this will happen over two years rather than the more rapid decline forseen by Mr Tombs.
His prediction was echoed by Samuel Mather-Holgate of financial advisers Mather and Murray Financial who said sellers are now starting to accept lower offers in a much quieter market.
He said “House price data is starting to show a fall and this will continue over the next six months. Prices in the capital will be down by 10 per cent in September, which is where the bottom will rest.”
Buying agent Henry Pryor said that while prices in London “have not move appreciably yet” the heat was definitely coming out of the market.
He said:”Whereas last year you might have had a queue of eight buyers for a property, now it will only be three. And one of them will be a fantasist and one in a chain and not able to move quickly anyway. We are back to where we would normally be rather than a market on fire.”
Mr Mather-Holgate added:”The one immune sector will be ultra-prime real estate as the pound remains weak there will be an influx of money from the East as China starts travelling again. Expect double-digit returns in this area as normal service for the wealthy is resumed.”
