Brexit, Political Uncertainty Impacting London Home Prices

According to global property advisor Knight Frank, London home prices declined 0.6% in 2018, but markets are increasingly localized and performance differs greatly by borough.

There were 20% fewer dwellings added to London's housing stock during 2017-18, though delivery remains well above the pre-crisis average. The construction and planning pipeline suggests delivery may fall further. Just five of London's 33 boroughs met their targets for housing need during 2017-18 and twenty delivered less than half.

Knight Frank further reports that delivery of Shared Ownership via Section 106 has more than doubled in three years and is likely to increase further as land values adjust to new GLA policies. Construction costs have also risen 14% in three years which, along with economic uncertainty, is exerting pressure on land values

Patrick Gower, Residential Research Associate at Knight Frank commented, "Beyond the political uncertainty, London's economy has remained healthy since the vote to leave the European Union. Average UK weekly wages grew at their fastest rate since 2008 in the third quarter as employment in the capital hit another record high. It is these fundamentals that have underpinned the property market, alongside low borrowing costs, schemes like Help to Buy and upgrades to infrastructure.

"However, the market faces structural challenges that are suppressing long term sales activity, including stretched affordability, tighter mortgage regulations introduced in the wake of the financial crisis, and patchy house price growth - though reports, including the latest RICS sentiment survey, indicate January was a stronger month than November and December.

"These factors, and a challenging policy environment, have also weighed on residential construction. Upward momentum in annual housing delivery that had continued unabated since 2012-13, reversed in 2017-18, with the number of dwellings added to total housing stock in the capital, including conversions and change of use, falling 20% compared with the previous year."