House prices have plummeted by more than a fifth in central London in a year, according to new figures from the Office for National Statistics (ONS).
The data showed they plunged by 22.8% in Westminster in the 12 months to May, by far the biggest fall in the capital, taking the average house price in Westminster to £836,000.
Factors behind the decline
Russ Mould, investment director at AJ Bell, described it as “a very substantial correction after a very long run of higher house prices.” He cited “a combination of factors ranging from the economic to the political,” including higher interest rates leading to bigger mortgage bills, tax changes, and some people possibly moving abroad after deciding “their capital is not as welcome in the UK as it once was.”
The falls in central London may also have been fuelled by the new “mansion tax” on homes worth £2 million and over due to come into force in 2028. The capital’s property market could be further hit if Prime Minister Andy Burnham presses ahead with a new homes levy to replace council tax and stamp duty, which he has previously backed. The reform, based on property values, could land London with an extra £7.5 billion property tax bill.
Other boroughs and London-wide trends
The second biggest drop in house prices in the year to May was in Tower Hamlets, of 14.5%, followed by Hammersmith and Fulham at 10.9%, and Kensington and Chelsea at 10.7%. The overall decline in house prices across London accelerated to 3.7% in the year to May, up from 2.3% in the 12 months to April.
Richard Donnell, executive director of research at Zoopla, said: “Political change, the World Cup, a scorching summer and elevated mortgage rates have hit housing market activity this summer. Zoopla’s very latest data shows 20% fewer buyer inquiries than a year ago and 7% fewer sales agreed.”
Monthly declines and UK contrast
House prices have now fallen in London for nine months in a row, according to the ONS. The figures for the city are in stark contrast to house prices rising on average across the UK. The size of the Westminster fall may be partly down to fewer transactions which can influence the scale of drops. Monthly figures from the ONS show increasingly bigger falls in central London: down 18.8% in the year to April in Westminster, 12.3% in the 12 months to March, 11.6% for February and 9.6% for January.
The average UK house price increased by 2.7% in the 12 months to May, slowing from a 3.9% annual increase in April, the ONS said. Across the UK, the typical house price in May was £271,000.
