Demand for typical London homes is being crushed by the impact on second-time buyers of soaring living costs and interest rates, key figures have warned.
Analysis by estate agent Benham and Reeves showed that buyer interest was weakest in October for homes in the capital priced between £400,000 and £499,999.
This is also the price point covering the capital’s highest number of properties for sale — excluding the £1 million-plus pool — according to the firm’s analysis of Rightmove listings.
The bracket below this, £300,000 to £399,999, had the second most available homes and the second lowest level of buyer interest, confirming the trend.
Demand is calculated by the estate agent as the percentage of listed properties classified as under offer or sold subject to contract. More than three-quarters of the 19,116 London homes listed above £1 million on a snapshot date of 19 October had that level of buyer interest.
This compared with 59 per cent of 16,535 properties in the much tighter £400,000-£499,999 bracket, and 60 per cent of 14,419 in the swathe below.
Demand rose again to 67 per cent for the 2,531 homes listed between £100,000 and £199,999, and 68 per cent for the handful of places available below that level.
London’s average house asking price was £685,200 this summer, according to Rightmove, although Benham & Reeves found only 10,121 homes were listed in the capital between £600,000 an £699,999 on 19 October. Buyer interest was running at 65 per cent, lower than the level of both cheaper and more expensive properties.
Eroded equity
Jonathan Hopper, chief executive of search specialists Garrington Property Finders, says it is “not surprising” that average-priced homes are seeing lower demand.
“The midpoint is the awkward second-steppers segment of the market,” he adds. “Buyers invariably are relying on an equity cushion and earnings to climb the property ladder.
“Price falls means they’ve seen that cushion eroded over the last 12 months, and with borrowing costs outpacing wage inflation, the next rung of the ladder, for many, is looking like a step too far.”
At lower prices, investors are attracted by high rental income and first-time buyers are benefiting from falling values, Hopper said.
“The top end of the market is less credit reliant, has more equity, and is making more discretionary choices when it comes to buying.”
Adrian Anderson, director at mortgage broker Anderson Harris, agrees that primary house-hunters were more active than other groups at present.
“The busiest part of the market for us at the moment is first-time buyers looking to get out of the ultra-competitive rental market,” he says. “They accept the mortgage rates for what they are as they haven’t got used to years of ultra-low interest.
“Next-time buyers may have enjoyed cheap mortgages for years and have adjusted their lifestyle accordingly. To go from a two-bed place on a two per cent mortgage to a four-bed family home on six per cent is a huge change and people are baulking at the numbers.”
Anderson says that while some will re-evaluate their budget or wait for rates to soften, others will press on regardless and often the decision is down to individual circumstances.
Reset expectations
Tom Bill, head of UK residential research at Knight Frank, says: “Equity and cash-rich buyers in the capital, often at the top-end of the market, are at an advantage given their reduced reliance on the mortgage market.
“Buyers at lower price points will be squeezed harder as they try to operate in the country’s least affordable housing market. Leveraged buyers are having to reset their expectations and this will happen to a greater extent where there is a proportionately heavier reliance on the mortgage market.”
Marcus Dixon, director of UK residential research at property specialists JLL, adds: “Across London, the top end of the market has been the most resilient in the face of rising interest rates, with more cash and equity rich buyers for multi-million-pound homes than across the wider market.
“The rising cost of debt means those looking to purchase face higher costs, either meaning budgets are reduced or buyers remain out of the market.”
Benham and Reeves director Marc von Grundherr says: “When it comes to current market performance, it’s clear that London is being driven by the £1 million-plus market at present, as not only is demand highest at this price threshold, but so too is the level of stock making its way to the market.
"That’s not to say that there isn’t a good level of stock at other price thresholds, or demand for that matter.
"However, the lower tiers of the market are certainly more susceptible to the uncertainty of the current economic landscape, as well as the increased cost of buying driven by increasing mortgage rates in recent times.”
Housing availability and demand by price point
Price bracket |
Homes listed on Rightmove in London |
Proportion under offer or sold STC |
£0-£99,999 |
537 |
68% |
£100,000-£199,999 |
2,531 |
67% |
£200,000-£299,999 |
8,364 |
61% |
£300,000-£399,999 |
14,419 |
60% |
£400,000-£499,999 |
16,535 |
59% |
£500,000-£599,999 |
13,348 |
63% |
£600,000-£699,999 |
10,121 |
65% |
£700,000-£799,999 |
7,244 |
68% |
£800,000-£899,999 |
5,172 |
69% |
£900,000-£999,999 |
3,648 |
71% |
£1m+ |
19,116 |
77% |
