As London Housing Prices Fall, Should Real Estate Investors Start Buying?

This is a guest post written by Matt Bigach. The views expressed in this article are not necessarily shared by Property Moose or DFI Financial Services.

Used to be that the only thing more dependable than Big Ben was investing in the London housing market. For example, let’s say you bought a London residence in 1998 for the average price of £115,000. 20 years later in 2018, that residence’s price would be somewhere around 300 percent higher.

However, just because something is dependable that doesn’t make it impenetrable to change. In 2017, Big Ben went silent. Around the same time, experts starting warning that the UK housing market could experience a downturn in the coming year. Sure enough, 2018 has seen a continuation in the market downturn that began in 2017. A recent survey by the Royal Institution of Chartered Surveyors (RICS) says that British buyer demand was down in March 2018 for the 12th-consecutive month while prices have flattened out as well.

Specifically in London, the story is a bit more bleak for sellers. Per mortgage lender Halifax, London housing prices are dropping at their quickest rate in nine years. Prices dropped 3.2 percent in the city between January and March compared to Q4 2017, making it the biggest decline since the financial crisis. Property values have also dropped 3.8 percent from the previous year, the biggest drop since 2011.

So knowing that this expensive market is in the midst of a big price drop, it begs the question: Is this a good time for real estate investors to buy? It’s a question that demands a bit more research as well as a few further questions.

Is Brexit to Blame?

In 2016, 51 percent of UK citizens voted to leave the European Union in a referendum known as Brexit. The actual split doesn’t take effect until March 2019 but the impact is already being felt. Prediction of market doom didn’t come true as the UK economy remained steady at 1.8 percent growth in 2016 and 2017, although inflation rose to around 2.5 percent.

Where the impact seems to have been the most negative so far is in home prices. As confusion about how Brexit will affect London’s economy in the long-term remains constant, many foreign investments have decreased, affordable housing has plummeted, and developers are hesitant to get to work without understanding what the market might look like a year from now.

It also won’t help that the Bank of England is expected to keep raising interest rates in the coming months as the economy continues showing positive growth. While it may be seen as a sign of economic prosperity, it is also sure to make it harder for London buyers to afford new homes.

What About the SDLT?

Another factor that has been called into question is the Stamp Duty Land Tax (SDLT). This form of tax charged on legal documents was increased in 2015 in an attempt to settle the housing market. However, the high rates for London caused many sellers to sit on their homes rather than enter the market over concerns about staggering tax fees. According to City A.M., the average London home generates around £27,232 in stamp duties. That’s four times as much as the average home sale elsewhere in England or Wales.

That rise in the SDLT, along with the removal of a “wear and tear” allowance, a restriction on tax relief on mortgage costs, and accelerated payment schedules for Capital Gains taxes has made buy-to-let opportunities (purchasing a property in order to rent it out) less attractive than they used to be. According to the current numbers, some say that it

London vs. The Rest of the UK

The truth is that the problems being felt in London are not being felt elsewhere in the United Kingdom. Per Halifax, UK housing prices rose 1.5 percent to £227,871 in March, their biggest gains since August 2017. Prices for the entire first quarter of 2018 were 2.7 percent higher than the previous year as well. It’s a big reversal from November and December, which saw sales flailing in most places.

The East Midlands and East Anglia saw huge price growth over seven percent while Scotland rose 6.7 percent and Yorkshire saw prices life 6.1 percent. When it comes to home prices, you’ll find the cheapest averages in Northern Ireland (£127,793), Scotland (£145,837), and the north of England (£146,648).

Experts point to a severe lack of affordable housing in London as a way to connect the dots between London’s sagging numbers and the rising prices elsewhere. As buyers find themselves either prices out or unable to find available inventory in the city, they’re looking elsewhere to see where they can make the most of their money. Considering how much lower prices remain in other parts of the UK, buyers are seeing how the money they’d put down as a deposit in London gets them so much more in the East Midlands or Scotland.

For investors, like Nexus Homebuyers, lower-cost opportunities might be found in places such as Manchester or Birmingham where investments can provide bigger gains. However, given the way the economy and political landscape is going to change in the coming year, it remains a tricky tightrope to walk if you’re looking to chart price fluctuations and investment opportunities.

What Do London Prices Tell Us?

Right now, the average price of a London residence comes in around £430,749, which is the lowest it’s been since 2015, but still much higher than everywhere else in the UK. In fact, only London, South West London (£337,776), south-west London (£237,371), and East Anglia (£236,335) are above the national average (£223,819).

While it’s mostly been about housing prices dropping in London, there are regions that have been seeing growth in recent months. Bexley in Southeast London has seen prices rise 4.2 percent since early 2017, Hackney in East London has since prices rise 3.6 percent, and Croydon In South London has watched prices go up 0.8 percent in the last year.

Is It a Good Time to Invest in London?

The key to succeeding in London’s housing market has always been to stay ahead of the market as much as possible, knowing when is the right time to buy in the location that will be the “next big thing.” There are some signs that point towards where that could happen in 2019 and beyond but it takes a real expert to understand all of the factors affecting the London housing market right now. Whether it’s to purchase in buy-to-let properties in order to generate income, consider buy-to-leave properties that will increase in value over time, or to find London’s next great real estate neighborhood, you want to turn to real estate investing experts. They’ll be able to match your current situation with the evolving market in order to identify the right opportunities that make sense and put you in the b

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