Central London property prices to drop by 5% in 2017 – Rightmove

UK-wide and outer London prices to nudge up as the inner capital's "price bubble continues to deflate"

“The sword of Brexit hangs over the market,” declares Rightmove’s spokespundit Miles Shipside, as the property portal predicts a pretty marginal 2% increase in UK-wide house prices next year – but a more chunky 5% drop in inner London values as the capital’s “price bubble continues to deflate.” Outer London values, meanwhile, are slated to rise by 3% in the coming 12 months.

Rightmove Forecasts for 2017

  • Inner London: -5%
  • Outer London: +3%
  • National” +2%

Rightmove’s national forecast is roughly in line with most others – chiming precisely with a Reuters poll (+2%), but more downbeat than Chestertons’ +6.5%, and more upbeat than Knight Frank’s +1%. It’s central London look-ahead is a touch more bleak than other voices, with that -5% coming in more bearish than Chestertons and JLL’s flat predictions for Prime London, Knight Frank’s and Savills’ range (-1.5% – +1%, and -1% – 0% respectively), and Cluttons baseline forecast of -1% in PCL. It is, however, in line with Strutt & Parker’s “worst case scenario” (which has a best case of a flat 0%). It’s worth bearing in mind here that research units tend to use slightly different definitions of prime/central/inner London, which is likely behind some of the more notable discrepancies.

Miles Shipside, Rightmove director and housing market analyst: “As we come to the end of the year figures showing high levels of sales agreed and dwindling numbers of homes for sale give a far greater level of reassurance about the outlook for 2017 than was previously available.

“Our forecast for 2017 is for modest price growth of 2% nationally. We forecast Inner London to remain weak and prices to fall by a further 5% in 2017, as its price bubble continues to deflate, whilst Outer London is predicted to record a similar increase to this year of circa 3%.

“As well as prices moving out of reach for some buyers, the sword of Brexit uncertainty hangs over the market, an unknown factor that may – or may not – have damaging consequences for the economy and confidence. There was a bout of jitters with the unexpected referendum result, albeit now seemingly short-lived, but more may arrive after Article 50 is invoked.”

Rightmove’s forecasts come after the portal recorded the biggest December drop in London’s asking prices for six years. This month’s 4.3% drop outpaces 2012’s 4% Christmas fall…

There are, however, “signs of pick-up in activity” in the capital, with sales agreed compared to a year ago only 7.2% down in November compared to 17.6% in October. But that pick-up is really only happening in outer London areas, where just 3.4% fewer sales were agreed. Central London, suffering, managed 13.8% fewer agreed sales this November compared to last year, indicating that “prices will therefore need to adjust downwards to achieve better equilibrium.”

Across the country, the season’s seasonal drop in asking prices is right where it should be. Rightmove’s recorded a 2.1% fall in asking prices of new properties coming to market in December, which is “exactly in line with seasonal average of last six years”.

But “the big surprise” is a bit of a spike in transactions: agreed sales are up by 5.2% compared to November last year…

London average asking prices

Area

December 2016

November 2016

Monthly change

Annual change

Greater London

£616,160

£643,838

-4.3%

-0.1%

Inner

£784,620

£834,985

-6.0%

-2.6%

Outer

£503,519

£515,761

-2.4%

+2.7%

Average London asking prices by market sector

Sector

December 2016

November 2016

Monthly change

Annual change

First-time buyers

£468,401

£477,179

-1.8%

+1.2%

Second-steppers

£665,544

£683,085

-2.6%

+2.7%

Top of the ladder

£1,380,358

£1,597,625

-13.6%

-8.7%

Shipside on central London: “Drops in the average price of property coming to market are no surprise at this time of year, especially as owners of larger properties are able to delay putting their property on the market until their holidays are over and buyer activity picks up. The previous largest fall at this time of year was 4.0% in December 2012, so this month’s drop of 4.3% is marginally worse. This indicates that alongside the seasonal slowdown, the re-adjustment of prices to match buyers’ greater reticence continues, especially in more expensive Inner London. We expect this to continue into 2017 as demand at current price levels lags behind more plentiful supply, though there are signs that the pace of slowdown in sales agreed is being arrested.

“Inner London’s higher-end markets require massive funds to secure a property compared to the comparatively modest average prices in Outer London, and now also attract a much larger bill for stamp duty. Buyers are being put off the really big ticket purchases at the moment compared to previous transaction volumes, and while sterling’s depreciation has helped to make things more attractive, the pressing need to purchase because of rising prices has disappeared. We therefore predict further price falls. London’s desperate need for affordable housing has moved to Outer London, and we forecast that will lead to further modest price growth in 2017.”

National average asking prices

Month

Avg. asking price

Monthly change

Annual change

Index

December 2016

£299,159

-2.1%

+3.4%

246.3

November 2016

£305,670

-1.1%

+4.5%

251.6

National average asking prices by market sector (excluding Inner London)

Sector

December 2016

November 2016

Monthly change

Annual change

First-time buyers

£183,900

£192,147

-4.3%

+3.9%

Second-steppers

£254,388

£259,157

-1.8%

+4.9%

Top of the ladder

£521,993

£533,818

-2.2%

+2.8%

Shipside on the national market: “For the housing market the uncertain outlook has meant a head and heart tug of war between ‘stay put’ and ‘carry on moving’. After a pause the mass-market seems to have opted firmly for the latter in most parts of the country. As we come to the end of the year these figures showing high levels of sales agreed and dwindling numbers of homes for sale give a far greater level of reassurance about the outlook for 2017 than was previously available.

“The price of property coming to market in 2016 is currently up by 3.4% compared to a year ago, so while a forecast rise of 2% in 2017 is a lessening of the pace, it would still be the seventh consecutive year of rising property prices. As well as prices moving out of reach for some buyers, the sword of Brexit uncertainty hangs over the market, an unknown factor that may – or may not – have damaging consequences for the economy and confidence. There was a bout of jitters with the unexpected referendum result, albeit now seemingly short-lived, but more may arrive after Article 50 is invoked. For the time being any nervousness is being over-ridden by high demand for the short supply of suitable homes for sale in the lower and middle market in many parts of the country.

“Given the immediate post-referendum state of shock in July, these sales agreed figures are quite remarkable, with nine out of ten regions ahead on last year. While not unexpected in the north of the country, it also includes all southern regions except London. Demand for mass-market housing remains undimmed, though buyers’ budgets are restricted and agents report that over-priced property is being shunned. Cheap and available mortgage money is a big factor in driving demand, and continuing market buoyancy next year will depend on banks remaining willing and able to lend.”