Despite falling more than 20% during the 08/09 global financial crisis, average London property prices are now down just 2.9% from their peak in the fourth quarter of 2007. Meanwhile the average price of a home across the whole of the UK remains 9.5% below its peak.
UK housing market is really two markets
When we talk about the housing market here in the UK, we are really talking about two different markets: London, and Everywhere else. (Within these two regional categories there are also two distinct sub categories: Prime and Sub-Prime. Prime properties are those valued at £1 million or more.)
Why the disparity?
There are a number of reasons for the disparity between the performance of the London market and the UK as a whole.
The first has to do with the attraction of the capital to foreign buyers with their enhanced purchasing power thanks to the devaluation of the British Pound. Thanks to the “success” of QE the pound has fallen against almost every currency you care to name and as a result property here looks cheap to those holding foreign currencies. Buyers from Japan for example can buy a ‘trophy’ home in Kensington or Chelsea for a 50% discount compared to the 2007 peak – and this is exactly what’s happening.
Another factor is the high number of prime properties located in London. For example, more than half of the 20 most expensive streets in England and Wales are in the Royal Borough of Kensington and Chelsea. Parkside in Merton (close to Wimbledon’s famous All England Tennis Club) is the most expensive residential street in England and Wales – with an average price of £5,058,000. These properties attract the uber-wealthy who are largely unaffected by the economic downturn and squeeze in living standards hitting the majority of Britons.
Chart: Nationwide House Price Index 1992 to Present – London & UK Averages
Damn Lies & Statistics
The important thing to remember is that the London market skews the UK average home price quite considerably. The reality is that the price of the average home outside London has fallen much more than the 9.5% the statistics suggest.