It looks like the London property market will continue to decline in 2018, with figures from Rightmove predicting that home values will fall by 2% next year. That follows a 1.8% decline this year, in a clear sign that the bubble may well be set to burst.
The online estate agent announced that the month of December so far has seen prices fall by 3.7% in London, far more than the 2.6% decrease nationally. With Christmas on the horizon, December is usually a quiet month for property sales anyway – but these figures dwarf those seen in recent years.
So what’s to blame? The sluggish economy certainly plays a part. The British Chambers of Commerce has this week downgraded its three-year outlook for the UK economy, causing some concern. Growth expectations have been revised down to 1.5% for this year, 1.1% for 2018, and 1.3% in 2019.
Rising inflation is also causing a squeeze on consumers. This week it was announced that inflation has climbed to 3.1%, a six-year high reminiscent of the recession. Inflation has more than doubled in a year, and with consumers starting to feel the pinch, it’s becoming apparent in falling house prices. As a result, Rightmove predicts that house price growth across the UK will slow to 1% next year – the weakest it’s been since 2011 (coincidentally around the time when inflation was so high).
London is a large and diverse city, so it’s natural that some areas will fare better than others over the next year. According to Rightmove, the lower end of the market will continue to outperform, and it’ll be the properties appealing to first-time buyers that are most resilient against decreases in value.
However, the recent tinkering with stamp duty by Chancellor Philip Hammond could have a large effect on the market. The Chancellor abolished stamp duty for all first-time buyers on properties worth up to £300,000 – but Rightmove say this could actually have the adverse effect of pushing up prices and weakening the negotiating power that buyers currently hold.
The upper end of the market looks set to suffer the most. The report estimates that prices will drop by 4% next year, up from 3.7% this year. However, the national shortage of property for sale will protect prices and house values to a certain extent.
