Will London’s Shivers Make the Rest of the UK Catch a Cold?

By this point in time, it’s just about impossible for anyone to dispute that the London property market is going through a hard time. The latest in a …

View of London

By this point in time, it’s just about impossible for anyone to dispute that the London property market is going through a hard time. The latest in a long line of statistics to support this assertion is new data from the Office for National Statistics which shows that in May 2019, property prices in London were 4.4% lower than in the same period the previous year. As a point of comparison, that’s the largest year-on-year fall since 2009.

Depending on your point of view, you may class this data as a sign of stagnation, a slowdown or a slump, but whatever way you look at it, the London property market has a definite case of the shivers. So does this mean that the rest of the UK will end up catching a cold? In this case, probably not. Here are three reasons why not.

London house prices were massively inflated by the 2012 Olympics

London’s bid for the 2012 Olympics was controversial at the time and the long-term legacy of the games is very much a matter for interpretation. What is a matter of fact is that the Olympics provided the catalyst for the regeneration of some of London’s most affordable areas causing a massive increase in house prices which was clearly unsustainable over the long term.

London is not a profitable location for buy-to-let property investors

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The only people in London who can achieve compelling rental yields are “accidental landlords” who paid little to nothing for a property (except Inheritance Tax). Professional investors who were buying property at market rates had to accept the fact that their rental yields were going to be frankly pitiful compared to what could be achieved in other parts of the country, especially the Midlands and North.

Essentially, London buy-to-let was often used as an economical way to finance the purchase of real estate in the capital rather than as a means of generating a living income. Now, however, a combination of regulation, taxation and competition (especially from Manchester) has led to many investors giving up on London (and moving Northwards).

London is very nervous about Brexit

There’s much more to London than the Square Mile (and Canary Wharf) but there’s also no getting away from the fact that the financial-services industry plays a huge role in London’s economy and the financial-services industry does not like the prospect of Brexit and it particularly does not like the prospect of a hard Brexit which would almost certainly see it lose access to European markets, if only in the short term.

If London’s financial-services industry contracts, it’s reasonable to assume that the impact of this will spread out to other industries which service it and in a worst-case scenario, could result in job losses. Understandably, people who are uncertain about their job prospects are unlikely to commit to buying property (even if they could get a mortgage), which means that there are fewer potential buyers active in the London market and in keeping with the eternal law of supply and demand, less competition leads to lower prices.

Author Bio

Hopwood House are specialists in UK property investment, with a wide range of investment opportunities including student properties and buy-to-let property investments in London, Manchester, Liverpool, Sheffield and Leeds.

 

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