London house prices: property market rises year on year but beginning to slow

The average asking price of a home in London is £682,000, a very slight drop on last month as the property market frenzy of the past two years starts to ease.

Affordability constraints, more homes being put up for sale and a traditional summer lull are behind the 1.1 per cent price drop in the capital, according to Rightmove.

The fifth consecutive base rate rise by the Bank of England last week, as well as looming storm clouds over the economy and the prospect the UK could tip into recession this year are also denting buyer confidence.

However, the property portal found buyer demand is more than double the pre-pandemic five-year average for May and London asking prices are still 4.9 per cent higher than this time last year.

“The exceptional pace of the market is easing a little, as demand gradually normalises and price rises begin to slow, which is very much to be expected given the many record-breaking numbers over the past two year,” said Rightmove’s Tim Bannister.

“When we look at the number of buyers contacting estate agents compared to 2019 or the pre-pandemic five- year average, demand is still very high compared to what was once considered normal.

“We’re hearing from agents that though they might have had slightly fewer enquirers for each property in recent months, they’re still seeing significant interest from multiple buyers and are achieving successful sales.”

These findings were echoed by a separate report from On The Market, which showed 84 per cent of London home sellers were confident they would sell in the next three months, and 77 per cent of buyers expected to purchase a property in the same time frame.

“A remarkable level of buyer and seller confidence in the housing market prevailed in May, despite considerable headwinds including soaring inflation and another interest rate hike by the Bank of England,” said Jason Tebb, CEO of On the Market.

“Against this backdrop, evidence is emerging of a rise in the number of new instructions, suggesting the start of an inevitable rebalancing of supply and demand in the market.”

Mr Tebb continued that serious buyers were determined to buy soon while mortgage rates were still relatively low.

The nine boroughs with the biggest asking price hikes were in outer London, with Havering topping the table. House prices in the east London borough rose 11.7 per cent to £1.46 million.

South-east London’s Bromley came next (up 11.3 per cent to £737,000) followed by Barking and Dagenham (up 9.5 per cent to £483,000); Barnet (up 9.5 per cent to £619,000); and Merton (up 9.4 per cent to £370,000).

In a trend that has become increasingly common as affordability remains stretched, the boroughs with the lowest price growth were all in inner London.

Southwark saw the lowest annual change of 0.8 per cent to hit £645,000, and asking prices in the borough dropped 0.3 per cent in the month.

Kensington and Chelsea saw prices fall 1.6 per cent in the month to £667,700, while Camden saw a monthly fall of 0.4 per cent to £1,004,000.