London house prices aren’t exactly falling down, but they aren’t exactly rising either. Statistics vary depending on timescale, source and the exact nature of the data, but overall the consensus of opinion is that, at the very least, the London property market is fraying at the edges. So what does that mean in practical terms for investors?
Why is London’s property market slowing down?
In order to determine what to make of this situation from an investment standpoint, the first question to ask is: “Why is this happening in the first place?”. There are several possible reasons and more than one could apply at once. Let’s take a look at three of them and see what they mean for investors.
Assuming that any slowdown in the economy is due to the prospect of Brexit may already be a cliche (or at least on the point of becoming one) but in this case, it may be a factor. Home buying is a long-term commitment and if people are unsure of what is going to be happening in their lives over the next few years, they are more likely to put off major purchases such as houses. Admittedly this applies across the country (and indeed the world) but London is arguably more exposed to Brexit than anywhere else in the UK due to it being the de facto headquarters of the UK’s financial services industry.
From an investment perspective – the population of London is over 8 million, the population of the UK is around 65 million. In other words, about an eighth of the people who live in the UK make their home in London. Barring any major shocks, it’s hard to see how this could change enough to sink the property market, which means that, over the long term, London almost certainly still has good long-term prospects. It is up to individual investors to decide whether or not they want to commit to London for the long term or look elsewhere.
Competition from other parts of the UK
Back in the 1980s London had Margaret Thatcher, yuppies and power dressing, while the north of England had Boys from the Blackstuff, Educating Rita and Bread. While this disparity made great fodder for comedy, it created tensions in real life and long before George Osborne formally kickstarted the Northern Powerhouse initiative, the government was using its influence to try to boost the northern economy. Around 10 years previously, in 2004, the licence-fee-funded BBC announced its intention to move part of its production to Salford. Fast forward to today and not only is the north of England going full steam ahead, it still has lower house prices than London, making it a very attractive destination for new companies, existing companies wishing to set up new operations and anyone for whom work is an activity rather than a place.
From an investment perspective – forget the “grim up north” jokes and take the north of England seriously as an investment destination, but remember to check any proposed investment thoroughly on its own merits before parting with your cash.
The “Olympic effect” is coming to an end
The 2012 Olympics fired the starting gun on a massive programme of regeneration in London, particularly east London and led to a huge rise in house values in certain parts of the city. That was then, this is now. The Olympic magic dust has settled and has become the new normal.
From an investment perspective – this is par for the course with any new infrastructure improvements, which is why astute investors tend to be interested in properties where infrastructure development is likely, but has not yet been factored into house prices.