One of the main London property market news headlines in October & September is that homeowners and potential buyers are moving away from the capital in droves.
New data from Hamptons, as reported by the Evening Standard, shows that 7.7% of all transactions outside of London were Londoners buying homes outside of the M25. That makes 32,600 sales!
There are several reasons why homeowners are choosing to leave London, with them stemming back to one root cause – it is too expensive for them. Choosing the best real estate investments does require choosing up-and-coming areas.
Rising mortgage interest rates mean that first-time buyers cannot afford to borrow a mortgage. The rising rates are adding thousands to homeowners’ bills every year, with an average hike of £12,000 being expected each year.
30% of those choosing to move away from London are first-time buyers, and the properties they are buying are on average around £90,000 cheaper than the average price of property in London.
By moving away from London, new homebuyers can save £8,656 a year on mortgage repayments with a 15% deposit.
Reports from Hamptons via The Evening Standard revealed that homebuyers are choosing smaller properties with one or two bedrooms to help save money, spending around £60,000 less than last year on average.
According to data they collected, the estimate is that almost 54,000 will choose to move away from London by the end of the year. This is almost the same number of properties that are sold in Wales each year!
This is having a detrimental effect on the London property market. Mortgage interest rate rises tighten homebuyers’ budgets, and so this is having a major impact on those who would otherwise be able to afford to buy in London.
It is unlikely that mortgage rates will fall enough by the end of the year to have any real effect on this, meaning more buyers will be priced out of the capital due to how expensive it is to borrow a mortgage right now.
Because so many people are choosing to buy outside of London, the city is seeing transactions start to fall. New homes being built are not being sold, as although there is high demand in London, it is simply too expensive for first-time buyers.
This will likely help to cause house prices in the city to fall, as fewer transactions will mean asking prices start to decrease so housing becomes more affordable.
For Property investors, this news has two ramifications.
The first is that because house prices in London are likely to fall, they are best off holding onto any buy-to-let properties they currently own in the city. With property depreciating temporarily, it means that they will make less of a profit on their investment property if they choose to sell now.
Rather, it would be a better strategy to wait until London house prices begin to rise again before deciding to sell. Property rises in value through capital appreciation, so selling at a time when prices are falling means getting less of a profit.
The second potential implication is that rental demand could start to drop in the coming months. With thousands of people leaving London for more affordable areas, there is less of a market for potential renters in London that would choose to rent instead of buying a home.
With them choosing to move away instead, this could impact the number of potential renters in the city. The lucrative target audience of young professionals, who are likely to have the salaries capable of affording to buy a first home, could be affected by this especially.
This would be bad news for investors, as luxury buy-to-let properties in central London and well-to-do areas like Kensington rely on young professionals to meet their high standards.
At any rate, this is a London property market news story to keep track of, as it could have long-lasting consequences.
Read our guide on the best place to invest in property for insight on alternatives to the London property market when it comes to your investment choices.