House prices in London's most sought-after neighbourhoods continued their downward trajectory in August, as confidence across the nation's property market faltered amid soaring mortgage rates triggered by the Iran war.
Areas of the capital's prime property market lost value last month, with house prices across London declining by 2.2 per cent year on year, according to the Office for National Statistics.
Prime Areas See Sharp Declines
In Westminster, which encompasses prestigious postcodes such as Belgravia, Mayfair and Maida Vale, the average house price fell by 14.3 per cent in August, to £887,000.
House prices dropped by 13.8 per cent to £1.2m in Kensington and Chelsea in the year to August, and by 10.6 per cent to £798,000 in Camden.
London's luxury property sector has lost value in recent months, as prospective vendors in this segment of the market bear the full weight of stamp duty and council tax burdens, as reported by City AM.
Mortgage Rates Climb
Rising mortgage rates, driven by the Iran war, have started to drag down house prices across the country, as sellers are compelled to reduce their asking prices in order to secure a sale.
The average two-year fixed mortgage rate has climbed to 5.55 per cent, up from 5.29 per cent the previous month and 4.25 per cent since before the Middle East conflict broke out, according to property portal Rightmove.
UK house price growth slowed for the fourth consecutive month to 0.9 per cent in August, the ONS disclosed on Wednesday. This development coincides with mortgage approvals dropping to their lowest level since 2023, while transaction volumes have declined both month-on-month and year-on-year.
Market in 'Wait-and-See Mode'
Paige Tao, an economist at consultancy PwC, said falling consumer confidence has left the housing market in "wait-and-see mode" ahead of the Budget.
The Government's relaunched Help to Buy scheme is expected to provide some respite to the market, but economists warn that Labour must use the Budget to ease concerns over rising borrowing costs.
"Fiscal credibility matters because gilt yields directly feed into the cost of mortgage finance. A Budget that unsettles markets could push borrowing costs higher and further delay transactions; one that restores confidence could do the opposite," Tao said.
Tom Bill, head of UK residential research at Knight Frank, said house price growth in the UK has "ground to a halt this year," with declining mortgage approvals pointing towards further subdued activity later this year.
He said: "The outlook for the UK housing market hinges uncomfortably on an overseas geopolitical risk, but downward pressure on prices could reverse quickly if the unpredictable Middle East conflict de-escalates or ends. As affordability constraints bite, it is no surprise to see the biggest price impact in London."
