Homeowners were today warned the London property market is heading for a prolonged slump as investors priced in interest rates staying above 6% until 2025.
The gloomy projections came as Britain’s biggest lender Halifax said prices in the capital dipped 2.6% in the year to June, the fastest rate of decline since the financial crisis almost a decade and a half ago.
However, the fear is that the downturn will accelerate as increasing numbers of owners come to the end of fixed mortgage deals at record low rates at or even below 2%
The interest rate swap markets now expect the Bank of England’s interest rate — currently at 5% — to peak at 6.5% next year and not to drop below 6% before the end of 2024.
That would mean mortgage rates topping at well above 7%.
Housebuilders are already feeling the pinch with demand down by as much as a third.
Today MJ Gleeson said it sold just 829 homes in the second half of the year, down 22% on the 1068 sales in the same period last year “reflecting the downturn in the wider economy and the immediate impact on buyer confidence as a result of higher interest rates”.
Most market professionals now fear it is only a matter of time before the drying up of demand feeds through more markedly to house prices, particularly as average mortgage rates edge ever higher.
Alastair Hoyne, CEO at London-based property lender Finanze Group, said: “I think the question is not whether the housing market will see a correction, but rather how quickly prices fall... Although upward pressure from a tight supply of UK housing has helped to slow the drop in property values, more and more home owners will now feel the pinch of rate increases as they attempt to refinance their current facilities.
“We anticipate two further 25 basis point hikes in September and November. Our prediction for an 11% decline in residential house prices over 2023 doesn’t now seem so far away.”
However, there were signs of resilience in London’s luxury homes market with the number of transactions up 9% in the second quarter.
Property consultancy CBRE’s analysis found 562 sales in prime central London— which covers areas including Mayfair, Knightsbridge, Belgravia, Kensington and Chelsea and homes priced at £1 million or more — were done in the three months to June 30.
That was up from 516 in the prior quarter.
Marcus Bradbury-Ross, head of the private office at CBRE said: “When looking at sales volume figures, activity in April, May and June paints a positive picture for the prime central London market, and it’s proving to be resilient to the current inflationary market.
“The higher up you go in terms of price point, the less affected buyers are by rising mortgage rates, and activity is mostly being driven by equity.”
