London house prices are notoriously high and they have been for decades. With properties selling for millions, a tiny London flat costing more than a four bedroom house in the north, and overseas investors paying over the odds for a good London postcode, it seems that the capital’s prices have become truly outlandish. There are a number of factors that have led to London’s incredible house prices and as London house prices start to fall, we look at what made them quite so high in the first place.
One obvious reason for high London property prices is demand. As one of the world’s most important financial centres, with many international companies headquarters and higher than average wages, it is obvious why so many people want to live in the capital. London is by far the largest city in the UK, with a population of a record 8.8 million that continues to climb by up to 100,000 people a year. London is also one of the most popular destinations for migrants to the UK, which is adding to the need for rental property. Economics dictates that if demand outstrips supply then prices will rise, and this can be seen in London at an extreme level.
Lack of supply is also a huge issue in London, as land around London is pricey and hard to find. A lack of brownfield sites and difficulty in gaining planning permission has meant that it is far easier for developers to turn to other cities like Liverpool and Newcastle to build new properties. Though there have been increasing targets for London house building from the government, there has been little progress in addressing the real need for London rental property.
London property as an investment has been another reason why prices have risen so much. More people than ever have chosen London property as a safe bet for their investment, with record monthly rental figures drawing them to the capital. According to Zoopla, in December 2018, the average price paid for a London property was £639,364, with the current average value sitting at £653,587. For a London flat, the average price paid was £498,314, with a current average value of £528,024. When it comes to detached properties, the average price reaches over £1 million, with the average price paid £1,072,529 and the current average value at £1,190,414. Though these prices are lower than they were, with a value change of -£37,322, they are still far higher than in the rest of the UK. In some exclusive parts of London, house prices are even higher, with an average property price in Kensington of £2,037,552 and £3,517,417 in Mayfair. The prestige of these postcodes and their superior location has meant that wealthy investors from around the world were willing to pay incredible prices for London property, pushing them up even further.
However, it looks like property investments in the capital aren’t quite as profitable as they were. Property investment firms like RW Invest have seen a growing number of their investors deciding to leave the London property market and move their attention northwards. With properties offering rental yields of up to 9%, it is proving beneficial to consider property in the UK’s regional cities rather than the capital. As prices in the capital are so much higher than the rest of the UK, rental yields are far lower there. With savvy investors looking for better value for money, the cities of the North seem a much better option.