Homeowners in London have been forced to reduce their property asking prices by an average of £23,500, as soaring mortgage costs have hit the capital harder than any other region in the UK.

According to data from Rightmove, asking prices in London have dropped by 3.4% since they peaked in May. Mortgage rates have tripled since the Bank of England began raising rates at the end of 2021, with the average two-year fixed-rate loan rate rising from 2.29% to 6.73%. This significant increase in debt costs is impacting markets where housing prices are already unaffordable and buyers heavily rely on mortgage borrowing.

London, being the highest-value market, is more likely to experience larger price reductions as the cost of mortgages has significantly risen. However, it is expected that the South West will ultimately record the biggest overall price drop. Asking prices in the South West have fallen by 3.2% since reaching their record high in July. This drop occurred over a shorter period of time, with prices falling from £396,990 to £384,182.

Marcus Dixon, a property consultant at JLL, explains that the South West and the South East benefited from buyers moving away from London after the lockdown. These markets may have further to fall because they saw rapid growth during that period. He said, “London is the highest-value market and in a time when the cost of mortgages has ramped up significantly it is therefore more likely to see bigger price reductions.”

The South West, which is known for being a popular area for buyers looking to purchase holiday homes, will be particularly affected as discretionary purchases are put on hold. Dixon points out that buying second homes has slowed down significantly. Across the UK, average asking prices have dropped by 2.1% since peaking in May, with the average home now listed for £364,985. In the South East, the asking price for the average home in early August was £481,452, a decrease of £14,259 (2.9%) compared to the peak in June.

It is important to note that asking prices are often considered a leading indicator for the housing market. However, the data shows that seller’s expectations are only just adjusting to a downturn that began nearly a year ago. Nationwide data reveals that UK sale prices, based on mortgage approval data, reached their peak last summer and have fallen by 3.1% year-on-year. In contrast, the Rightmove data shows that asking prices only peaked in May this year and have so far only dropped by 2.1%.

Matt Thompson, head of sales at Chestertons estate agents in London, explains that there has been an expectation gap, with many agents pricing properties above the market. However, with interest rates impacting affordability and confidence, the market is no longer moving upwards. As a result, sellers are starting to adjust their asking prices to increase their chances of finding a buyer quickly.

Summary

London homeowners have been forced to reduce property asking prices by an average of £23,500 due to rising mortgage costs. The capital has been hit harder than any other region in the UK, with prices dropping by 3.4% since May. However, the South West is expected to record the largest overall price drop. Asking prices in the region have fallen by 3.2% since their peak in July. The South West, known for its popularity among buyers looking for holiday homes, will be particularly affected as discretionary purchases slow down.

While asking prices are often seen as a leading indicator, they have only recently started to adjust to the downturn that began nearly a year ago. Despite UK sale prices falling by 3.1% year-on-year, asking prices have only dropped by 2.1% so far this year. As the market adjusts to rising interest rates and affordability challenges, sellers are beginning to recognize the need to set realistic prices to attract buyers quickly.

The property consultancy JLL has forecasted a peak-to-trough decline in house prices of 10% to 12%, with a 6% drop expected this year. Their previous prediction of hitting the price bottom in spring 2024 may now look optimistic. Aspiring investors should keep a close eye on market trends and consider adjusting their investment strategies accordingly.