It’s a well-known fact that house prices in the capital have stagnated in the last year or so, and this frustration for investors is now being felt in the lettings market amongst landlords as well. Fewer homes are going on the market and with properties struggling to sell, it may be time to start looking outside London and at other major UK cities.
In today’s article, we’re going to look at the wider view that rents in Central London are falling and why so many are shying away from those markets as a result currently.
Knight Frank recently published research that showed rents in prime Central London have declined by 2.1% in consecutive years in February since 2016. The same percentage drop in rents was seen in the year to January figures as well, leading many to believe this could be a trend set to continue in the near future as far as London is concerned.
This drop in prices is despite the growing demand for property in Central London, with 17.6% more would-be tenants looking to rent homes in the area in January again according to Knight Frank. 6.4% less properties were advertised to rent in the year to January 2018 than the previous year. It is this increasing demand that could see rental values regain some of their strength in the coming months.
How are sales affected?
On the sales side, prime property in London has seen a rising discrepancy between original asking price and final selling price, with the average gap now reaching around 10%.
A statement said: “The prolonged nature of the adjustment in prime London rents is due to the high levels of supply introduced to the market in recent years, including during the period following the introduction of an additional three per cent rate of stamp duty for landlords in April 2016.”
“As new supply moderates and demand strengthens, we expect to see continued upwards pressure on rental values.”
Barratt Homes pulling out of the capital
Barratt Developments, the UK’s biggest house builder, has said it will not seek to build any new homes in central London after being forced to cut prices on existing stock. David Thomas, Barratt’s chief executive, on Wednesday said the builder had not bought any new London development sites since 2014 and confirmed it had no plans to buy any more for the foreseeable future once those were built out.
“We’ve been in a position over the past 18 months where that market has become very challenging to sell,” said Mr Thomas, adding that Barratt had been lowering prices on homes to accelerate sales.
The fact that such a reputable and renowned developer like Barratt’s are starting to recognise London as ailing somewhat does not necessarily mean the capital is doomed, but taking longer than expected to recover from Brexit fears. The oversupply of properties in London is also a major factor in Barratt’s decision, and they now are likely to focus their efforts on outer London areas and other major UK cities, signalling them as the go-to places for investment right now.
A doomed market? Or a temporary setback?
Whilst London has been unrivalled in terms of capital growth for the best part of 10 years, based on current markets and projections, it looks set to merely level out the way it has done over the last year and a half. This signals a major change for the London property sector and many investors are aware of this moving forward. Although demand in London will always be very high, other major UK cities like Manchester, Liverpool and Birmingham have been much more resilient to the Brexit hangover than the capital has. They are where the smart money is going right now, and while London is not a finished market by any means, it doesn’t measure up in terms of the capital growth and high yields that can be found elsewhere.
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