House prices are falling in London but how does it compare to the rest of the UK?

The UK housing market has slowed for much of the year with higher interest rates impacting buyer budgets and pushing house prices down, but London, as usual, is behaving differently.

The capital’s property market has always been viewed separately to the rest of the UK, particularly in prime central areas where there is more of an international focus and high mortgage rates don’t make much difference to buyers who can either afford it or are less reliant on debt.

The latest ONS House Price Index shows while average values fell 0.5% on a monthly basis and 0.1% annually in September, the falls in London are not as pronounced in the worst performing neighbouring areas.

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For example, while average prices fell by 1.4% annually in the South East and East of England and by 1.6% in the South West, they were down 1.1% in London during September.

The latest Halifax House Price Index further illustrates the difference.

Its October House Price Index found prices in the South East England are currently down 6% annually, while the London market was down 4.6%.

So how is the London property market performing?

Are house prices falling in London?

London still holds the crown as the most expensive place to buy a property in the UK. The average London house price is currently £537,000, according to the ONS. While much of the market has been falling, commentators suggest London isn’t being hit as hard.

This is, in part, attributed to prices not rising by as much in the capital during the pandemic as many buyers looked outside London amid the race for space.

Average London property prices rose 11.3% between the start of the pandemic in 2020 and the end of September 2023. In contrast, average UK house prices are up 25% over the same period.

More recent data from buying and investor agent London Central Portfolio (LCP) for the third quarter of 2023 shows prime central London (PCL) prices were down 0.5% annually, compared with a 1.3% drop in greater London and a 1.4% drop across England and Wales.

Tom Bill, head of UK residential research at Knight Frank, says London continues to outperform the rest of the UK, largely because prices grew by relatively less during the pandemic.

“Average prices in prime central London are 17% below their last peak in mid-2015 while prices in prime outer London are down by 8% compared to mid-2016,” he says.

This is reflected in buyer sentiment and sales, according to Knight Frank analysis, which found the number of offers made in prime London markets is now 5% above the five-year average.

“The number of new prospective buyers was 7% higher than the five-year average in the three months to November in London, which compared to a decline of 10% across the UK,” Bill adds.

“Furthermore, the number of exchanges was up 5% in the capital during the same period but 16% down across the UK.”

Will house prices fall in 2024?

Most analysts agree that house prices have fallen this year and will drop further in 2024 as markets adjust to higher interest rates and borrowers come off relatively cheaper fixed rate mortgage deals.

Predictions vary though.

Zoopla has predicted that UK house prices will fall by 2% during 2024, while estate agent Savills is anticipating a 3% drop.

The Office for Budget Responsibility has predicted a 4.7% fall and Knight Frank has forecast a 5% decline.

But there is a bit more positivity about London.

Savills, says prime central London is expected to outperform most other UK residential markets over the next five years. 

“With prime property values still well below historic peaks in central London, a recovery looks well overdue,” says Frances McDonald, director of residential research at Savills.

“Values are likely at or close to their nadir, though we expect the bounce to be much less aggressive than in previous cycles given a higher tax environment and greater scrutiny of sources of buyer wealth.”

Overseas buyers looking at London are also likely to benefit from favourable exchange rates.

“It is good news for dollar-denominated buyers as the current exchange rate presents a favourable opportunity for those looking to enter the property market,” says Liam Monaghan, managing director of LCP.

“Along with generally suppressed pricing in the PCL flats market, buyers purchasing in US dollars will also be benefitting from a secondary discount of up to nearly 13%.”

But London won’t be immune to economic and political headwinds next year.

“While the appetite of buyers and sellers should increase in 2024, at some stage this will be interrupted when Rishi Sunak calls the general election,” adds Bill.

“The big question is when.”