Recent figures suggest that the London housing market is falling quicker than anywhere else in the UK. Despite appearing to defy gravity in light of last year’s Brexit vote, many experts believe that the negative comment and negative sentiment has finally caught up with the London market. We’re not talking massive falls in London house prices, we’re not talking about an imminent collapse but a 3.2% annual fall in London property prices is the largest since 2010. So, will the rest of the UK housing market follow suit?
Market within a market
On numerous occasions we have covered the London property market which is in effect a market within a market. It often bears no resemblance to the wider UK housing market, where 54% of property prices have yet to return to their 2008 levels, and the sooner real estate investors appreciate this difference the better for all concerned.
It would be incorrect to suggest that the rest of the UK is riding high on the crest of a wave when it evidently is not. Brexit is causing concern, a political stand-off between the Conservatives and Labour is helping nobody and constant ridiculing and stick poking by the European Union is aggravating the situation. The European Union is also adamant that London financial markets will not have easy access to European financial trade once the UK leaves the European Union. However, realistic experts fully appreciate that London is a unique financial market and perhaps the European Union needs London as much as the UK needs the European Union?
Are we currently living a worst-case scenario?
A number of financial companies have expressed interest in transferring their European head offices to Dublin to remain within the European Union. While the numbers who have actually transferred so far is minimal this threat has caused some concern amongst London property investors. The 3.2% year-on-year decline in London property prices still sees them higher than they were in the aftermath of the 2008 economic downturn but obviously sentiment has turned.
Many people were not aware that the rest of the UK has not regained the heady heights of 2008/9 just prior to the worldwide economic collapse. The further north you go in the UK, through the Midlands and the North East of England up to Scotland, the more depressed housing markets become. It is possible to attain double-digit rental yields in the North of England and Scotland although these properties will offer limited capital growth for the foreseeable future.
While any further concerns regarding Brexit and an economic downturn in the UK will impact prices across the country, we are unlikely to see anywhere near the kind of movement outside of London than we have seen in London property prices over the last 12 months.
London is a drag on UK house price performance
If we were taking a realistic view of the UK property market it would make perfect sense to quote prices excluding London because London bears no resemblance to the rest of the UK. In the good times London property price rises make the rest of the UK seem better than it is and in the downturns the average falls are overdone because of the London weighting. This effects sentiment, investor timing and is therefore a little misleading to say the least.
UK wide property prices, excluding London, are not immune from general market movements and no doubt the south-east of England will suffer the most outside of London. However, anyone who suggests that the rest of the UK market will follow London property price falls to the same degree should perhaps review their research and statistics. House prices outside of London have not been inflated to anywhere near the same extent than those in London as we are starting to see now.