London homeowners were today given a bleak warning that property prices will fall faster in the capital than anywhere else in the country next year as higher mortgage rates send the market plunging.
Prices outside the most exclusive addresses of central London will slump by 12.5 per cent next year with a further one per cent dip in 2024, before a recovery begins in 2025, according to new forecasts from agents Savills.
However, even by 2027 prices will not have fully recovered the lost ground and will still be 1.7 per cent below current levels.
Savills said owners in London and the South-East will be worst affected because they have stretched themselves most with the highest levels of debt.
Prices across the UK as a whole are only expected to fall 10 per cent. The gloomy projections come as the Bank of England was today set to push up interest rates for the eighth consecutive time since they started rising from an all-time low of 0.1 per cent in December.
The forecast property downturn would be the deepest slump since the global financial crisis. But it will be far more prolonged as prices then bounced back quickly after the Bank slashed interest rates to emergency levels.
Lucian Cook, head of residential research at Savills, said: “With the largest gap between incomes and house prices of any UK region in London and the South-East, buyers typically need to borrow more relative to income and need a bigger deposit to buy.
“As a result, we expect higher interest rates to hit buyers and prices in the mainstream markets of these areas hardest in 2023.”
Leading City economist Paul Dales, of forecasters Capital Economics, said London prices will slump 15 per cent over the next 18 months, largely as a result of high borrowing costs.
Writing in the Standard today, he said: “What has changed is the willingness and the ability of people to buy a house, with the ability now being constrained by the recent surge in mortgage rates.
“That was partly due to the ‘mini-budget’ policies of the previous Prime Minister/Chancellor combo of Truss and Kwarteng, which the current pairing of Sunak and Hunt have already reversed.
“But it was also due to a growing realisation that borrowing costs for both businesses and households need to be higher to reduce inflation from 10 per cent back to the two per cent target.”
Savills said prime central London will weather the worst of the storm as it is less dependent on buyers with mortgages. Its prices are expected to fall two per cent in 2023 before recovering.
