Normally the London housing market is the driving force of the British housing market. Prices here mostly rise more quickly than elsewhere in the United Kingdom. At the moment, however, the opposite is the case. This is revealed in the September publication of the reputable price index of the Nationwide Building Society: while for the first time in eight years housing prices in London have fallen slightly by 0.6 percent compared with the previous year, in other regions of the UK they continued to climb by an annual rate of as much as 5 percent. Nationwide, the average purchase prices for house and flats have still risen by 2.2 percent compared with September 2016. This also raises the question of whether the price development outside London will follow Britain’s capital city into the negative zone. After all, the price development in the overall market is also decelerating compared with the price gain chalked up last year of some 5 percent.
In the final analysis, the drop in house prices in London comes as no surprise: compared with the still largely stable house prices, the number of transactions has fallen noticeably since the end of 2015 from more than 10,000 monthly sold units to 6,000 to 7,000 units. The market slump initially became more apparent in the more expensive locations of London. Brexit however, that is burdening the British economy, leading to job relocations in the financial sector to the continent and unnerving investors, is not the only factor choking the London house market. The change in the system of taxing residential property introduced at the end of 2014 is also playing a role in this context. The tax rates on cheaper properties was lowered and those for more expensive properties – which applies to many houses in London – raised. And since 2016 a tax surcharge of 3 percentage points has been added to existing properties which, given the high prices paid for London house purchases, has had a correspondingly noticeable impact. But the expensive properties themselves are also making the London market more vulnerable. Here, the average purchase price has risen since 2012 by more than 50 percent to recently somewhat more than 470,000 British pounds, while the average price nationwide in this period only rose roughly half as strongly to just over 210,000 British pounds.
Thanks to the considerably more moderate price levels compared with those of London, in conjunction with the lower taxes, the odds look good that the house markets outside London will continue to perform somewhat better. But, given the subdued market environment, little more than zero growth can be expected nationwide. This is already being signalled by the decline in the sales units overall. The main reasons for this are the meagre economic prospects, the drop in consumer confidence and the prospects that interest rates will rise again in the near future. But the market is not expected to collapse either: The housing shortage due to the moderate volume of new house constructions, and the financing conditions that are likely to remain comparatively favourable, should have a stabilising effect.