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Evening Standard
Evening Standard
Business
Meghann Murdock

London house prices: sellers now discount homes by around £29,000 on average in bid to secure sales

London home sellers accepted offers an average of £28,900 — or 5.5 per cent — below their asking prices in February, in an attempt to secure sales as buyers struggled with higher mortgage rates.

The greatest discount on London asking prices for four years, it was last surpassed in January 2019 when sellers were found to be dropping prices by 5.7 per cent on average.

Buyer demand and sales volumes both fell year-on-year as the cost-of-living crisis continued to bite and affordability remained stretched.

As a result, the average asking-to-achieved price gap has widened to its largest point in five years throughout the country, according to new research from Zoopla.

Meanwhile house price growth was lowest in the capital, the UK’s most expensive region, with property rising 2.5 per cent to £524,800. This compares to 5.3 per cent growth nationally.

"London's housing market has been the under-performer over the last six years in terms of house price growth and numbers of home sales," said Richard Donnell, executive director at Zoopla.

"This under-performance has seen the capital slowly become better value for money but its still the highest value housing market by national standards.

"Higher house prices means higher mortgage rates have a bigger impact on the buying power of households looking to buy and greater negotiation over asking prices. Even though price rises have been lower, the average discount to asking price is above the national average at 5.5 per cent."

High mortgage rates are having the greatest impact in areas where buyers are already stretched due to high average property prices — notably London and southern England — which are seeing minimal price growth.

Having soared to six per cent in the wake of the mini-Budget last year, mortgage rates of between four and five per cent are becoming increasingly widespread, following several years of historic low, near-zero rates.

Buying power is "starting to recover", said the Zoopla report, yet even at a mortgage rate of four per cent "the average home buyer has a fifth less buying power than they did a year ago when mortgage rates were two per cent."

What has happened to house prices in your area?

Inner London recorded the weakest rates of annual price growth across the UK last month, with west-central London showing -1.4 per cent growth that equates to a price drop of £11,100 over the past year.

West London saw growth of just 0.6 per cent (an increase of £4,300) while south-west London recorded 1.3 per cent annual growth (a rise of £9,500). Average property prices in these three inner London areas are £755,400, £764,300 and £720,200 respectively, according to Zoopla.

Property forecasters continue to predict house price falls of between three and 12 per cent across London this year.

“The London property market isn’t sticking to the script," said Tom Bill, head of UK residential research at Knight Frank.

"We were supposed to see the sales market falter due to higher mortgage rates and tenants benefit as supply was pushed higher by more ‘accidental’ landlords. In reality, the price declines that followed the mini-Budget appear to be bottoming out in prime areas of the capital, supported by the fact that around half of sales in central London are in cash.

"In the mainstream market, buyers are recalculating their budgets rather than walking away from sales, which will continue to put downwards pressure on prices. Sellers’ price expectations will only be properly put to the test in the spring and we expect prices to fall by five per cent across London this year."

The strongest performers across London for annual house price growth are outer east London areas such as Barking and Dagenham, which saw a 4.7 per cent increase to £338,300, and Havering where prices have risen four per cent to £425,500. Only Westminster saw a fall of 0.3 per cent to £963,200 — although the average price is still £16,500 higher than at the start of the pandemic.

The greatest three-year jump in house prices can be seen in Richmond upon Thames where the average price of £768,400 is still £79,200 higher than before the pandemic.

Other leafy, suburban-feel areas to have seen lasting growth after the 'race for space' include Bromley and Kingston-upon-Thames where prices are still £70,500 and £67,900 higher than January 2020.

The average London home value increased by 9.4 per cent — or £44,900 — during the pandemic, according to Zoopla.

The UK picture: heading for a ‘soft reset’

Annual house price growth across the UK was 5.3 per cent in February — down from 8.6 per cent last year. Additionally, sellers are now discounting their home by an average of 4.5 per cent — or £14,100 — to secure a sale.

While significant, the discount is around a third of the value added to homes across the UK in the pandemic when around £42,000 was added to the average house price.

Zoopla said that 40 per cent of homes listed for sale on the property portal have had their asking prices reduced.

"Our house price index is now registering modest monthly price reductions which have dragged the annual rate of inflation lower to 5.3 per cent."

"We expect our UK index to continue to show small month-on-month price reductions over the next two to four months as a soft reset in house prices continues. By the summer, we anticipate our index to be recording modest annual price reductions of up to two or three per cent."

Donnell added: “Greater realism on the part of sellers is supporting housing market activity in the face of higher borrowing costs. Many homeowners are sitting on sizable house price gains made over recent years and have more room to be flexible accepting offers below the asking price."

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