London was the worst-performing home market in the U.K. last year for the first time in more than a decade and may be stuck there.
Nationwide Building Society said values in the capital fell 0.5 percent — the first full-year decline since the 2009 recession — lagging behind a 2.6 percent increase nationally. It’s the first time since 2004 that the city has ended the year as the slowest-growing region.
The weakness may persist in 2018, with property website operator Rightmove and the Royal Institution of Chartered Surveyors both predicting price declines in the city. Nationally, values will increase on average, though Nationwide sees only about 1 percent growth. That compares with a 4.5 percent rate recorded in 2016.
The property slowdown is due to factors including an inflation squeeze, Brexit uncertainty and tax changes affecting landlords and owners of second homes. Bank of England data on Thursday showed that approvals for mortgages were little changed in November and below the six-month average.
That’s the same month the central bank raised interest rates for the first time in a decade, which added an additional headwind to the market.
In December alone, Nationwide said U.K. house prices rose 0.6 percent from November, to an average 211,156 pounds ($285,000), though monthly figures can be volatile.
What Our Economists Say:
“The increase in house prices beat expectations, but in a month when transaction volumes are thin. The broader outlook remains one of weak house price inflation, with demand constrained by stretched valuations, tepid real income growth and Brexit uncertainty.”
— Dan Hanson and Jamie Murray, Bloomberg Economics
London has taken the brunt of the slowdown after years of surging values that stretched affordability for first-time buyers. It’s also been skewed by prime property, with some of the biggest declines seen at the top end of the market.
In a report this week, estate agent Savills said the downturn among the most expensive properties may be easing, but it doesn’t expect a return to growth without greater clarity on Brexit. “A backdrop of political and economic uncertainty means the market will remain highly discretionary,” said Lucian Cook, head of residential research.
While prospective typical homebuyers in London are in the top 10 percent of the income distribution, the scale of the down payment needed is daunting at almost 83,000 pounds — a 58 percent increase since 2007.
Nationwide estimates it would take around 10 years for a first-time buyer in the capital to save up — based on a 20 percent deposit and the average price paid by such buyers. That compares with eight years in most other regions.