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Is this the end of London's house price slump?

A graph showing decline 
The number of areas registering a decline in house prices in the capital is beginning to fall

House prices in many parts of London have been falling for some time, with the froth coming off the overheated market.

This was due to dampened demand, as buyers were put off by tax changes, high prices and poor value for money. The number of sales in the city has fallen by a quarter since 2014.

But this correction may be ending: in October 2018, the level of house price falls in London plateaued, according to new research by Zoopla. The number of areas in London registering a drop in house prices over the past 12 months is now 68 per cent, down from a peak of 80 per cent back in October.

It predicted that house price growth will be flat this year, before picking up in 2020. As the cost of buying in the capital realigns with average salaries, experts predict that demand will bounce back.

While the number of places recording falls is high, the price declines are small (less than 5 per cent), especially compared to 2009, when there were double digit drops.

“The London housing market is coming to the end of what can be described as a three to four year repricing process, in which many areas have experienced small, single digit falls,” said Richard Donnell from Zoopla. “House prices grew rapidly between 2010 and 2016 and we’re currently seeing those prices fall back into line.”

What this means for the rest of the South

House prices in London fell partly because of the nature of property cycles: values rise too high and then this is followed by a correction as local people struggle to afford the higher prices. The capital leads the rest of the market and so is usually at the beginning of the cycle, which then ripples out to the South East and then beyond.

That means that these price falls are now spreading out from London across the south of England. “Further away from London, we’re at an earlier stage in the cycle and house prices are still falling in many areas,” explained Donnell. The number of housing markets experiencing drops on a year-on-year basis has steadily increased since 2016 to around a third.

The areas that have fared the worst in the house price slowdown with the steepest falls in house prices are largely expensive commuter hotspots in the south-east and east of England, including Woking, Epsom and Maidenhead.

However, the level of house price falls across the south of England has remained modest, and in the vast majority of areas have been less than 2.5 per cent. According to Zoopla the South will take longer than London to reach the end of its price correction, and it expects the decline to continue until it reaches a peak in 2020 before plateauing.

Where are house prices bouncing back the fastest?

Parts of London are already bucking the trend of declining house prices and recording positive growth. These tend to be more affordable areas where buyers have not been priced out. The London borough that experienced the strongest growth over the past 12 months was Havering, where house prices rose by 0.8 per cent and property costs on average £374,375.

In all of the four London boroughs where house prices have risen over the past year (Havering, Newham, Barking and Dagenham, and Bexley) the average home costs under £400,000.

The same is true outside of the capital. The areas in the east of England where the value of housing rose the fastest over the past year were Peterborough, King’s Lynn and West Norfolk. Here the average house costs around £200,000 and house prices are increasing by at least 3 per cent year-on-year.

In the South East and South West, prices have increased most rapidly in Dover and Taunton Deane, by 3.4 and 4.6 per cent respectively, bringing the value of the average property up to £246,991 and £225,549.

The areas still experiencing a slowdown  

The areas of the capital with the weakest growth are also some of the most expensive, suggesting that high prices are still dampening demand. In the City of London, where the average house costs just under £827,000, prices have fallen by 3.4 per cent. The borough of Camden has been hit by a price drop of 2.5 per cent, reducing the average cost of a property to £745,767.

Outside of London it is desirable, commuter-friendly districts near London such as Dacorum, Hertsmere, Chiltern and Woking that have suffered worst. Annual house price falls in these areas range from 2.3 to 1.7 per cent and average house prices from £397,535 in Dacorum to £577,684 in the Chiltern district.

London's Camden is recording house price falls Credit: Alamy

What should sellers do?  

There is still hope for homeowners in the South looking to sell up. “There remains plenty of demand for housing in southern England. Buyers are simply more cautious and seeking value for money,” said Donnell.

He advised sellers to be realistic when setting their asking price and to bear in mind affordability and demand in the local area. “Would-be sellers should speak to a good agent with their finger on the pulse of the local market to get a true view of demand and the right price to achieve a sale as things looks set to remain challenging over the rest of 2019.”

Zoopla found that the gap between asking prices and sales prices is beginning to narrow, suggesting that sellers are pricing more realistically and that demand is beginning to pick back up.