London house sales have dropped 9% year-on-year as mortgage payments for the average Londoner rose by £244 per month, driven by the war in Iran and political uncertainty, according to Zoopla's House Price Index released today.
Buyer demand in the capital fell 12%, and 72% of properties listed for sale since January remain on the market. This slowdown is attributed to the conflict in Iran, questions over future tax and spending priorities in the autumn budget, and the impending change of Prime Minister, which have caused borrowing costs to spike.
Mortgage Costs Hit First-Time Buyers Hard
In April, mortgage rates hit 5%, adding £244 per month to the average Londoner's mortgage, significantly more than the £125 per month increase seen elsewhere in the UK. First-time buyers in London face an additional £232 per month, equivalent to £2,784 per year, plus stamp duty costs of around 3% of the purchase price, compared to less than 1% in northern England.
This has led to London's house price growth falling to -0.2% in May, the lowest of any UK region, marking the ninth consecutive month of negative annual house price inflation in the capital. Nationally, average house price inflation stands at 1.4%.
Estate Agent Comments on Market Conditions
“A combination of too much property on the market across various price ranges, as well as continuing uncertainty about the protracted war in Iran and the subsequent impact on the economy, is proving lethal as far as homebuyer and seller confidence is concerned,” said north London estate agent Jeremy Leaf. “Sales are taking much longer and it is proving increasingly difficult to generate commitment. However, the overwhelming majority of sales which have been agreed are proceeding, although inevitably more slowly and suffering relatively few price negotiations. This is likely to prove the 'new normal' at best, looking forward, particularly now that domestic political uncertainty is another factor to consider.”
National Picture: Regional Variations
Buyer demand and agreed sales are down across the UK. Wales saw the highest dip in agreed sales at 12% year-on-year, while East Midlands, East of England, and the South West all recorded drops of over 10%. Nationwide, buyer demand fell 15%, with the West Midlands at -30%, North East at -29%, and East Midlands at -22%.
Scotland and northern England were less affected due to lower housing stock and smaller mortgage increases. Scotland and the North West each saw a 4% decline in sales stock, with house price growth of 3% and 3.5% respectively, the highest in the country.
Flats Underperform Houses
One and two-bedroom flats have slumped the most, with over two-thirds listed this year remaining unsold, reflecting the impact on first-time buyers. Two and three-bedroom houses are performing similarly to last year.
“Higher mortgage rates have hit sales and squeezed affordability for home buyers alongside increased political uncertainty. The impact is less severe than what the market faced after the 2022 mini-budget, and mortgage rates have started to fall,” said Richard Donnell, Zoopla’s executive director. “The national picture can only tell you so much, and local market conditions vary considerably across the country. The most important step, whether you are buying or selling, is speaking to a local agent who knows what is actually happening on your street. For sellers still waiting for an offer, the conversation to have is about price. Correctly priced homes are selling, while overpriced homes are sitting. For buyers, rates are falling, there is more choice of homes for sale than a year ago and motivated sellers are willing to negotiate. If you are ready to move, conditions are more favourable than they were three months ago.”
