What’s happened to London property prices over the past decade?

Monday 1st July 2013

Following the recent departure of the Governor of the Bank of England, Sir Mervyn King, it would be timely to evaluate how London property prices have performed under his reign.

Mervyn King's ten year reign as Governor has been an eventful one in the UK housing market, particularly in London, which witnessed one of the most spectacular price booms between 2003 and 2007, followed by an almighty bang in which values plummeted following the global credit crisis in 2007-08.

The housing recovery in the capital, in stark contrast to the rather sluggish nature of the wider UK market, has seen prices rise sharply across many parts of the city since early 2009, fuelled in part by a growing supply-demand imbalance, caused by a lack of house building and greater appetite from national and international homebuyers.

King has left his post, with the latest data from Nationwide showing that London property prices increased by 5.2 per cent in the second quarter of this year compared with the same quarter in 2012. This marks the greatest recovery in values of any region, with the average price of a home in London now 5% above their 2007 peak at £318,214 - almost double the UK average of £168,941, according to the Nationwide house price index.

Undoubtedly, the biggest property boom has been seen in prime central London, where values have grown by 58.4 per cent over the last ten years, a separate study by London based Cluttons estate agents reveals.

When King first took up the position in Q3 2003, the average cost of prime residential property in the capital was £1,013,384. Ten years later, house prices average at £1,604,873 for Q2 2013 – a 58.4% total increase, averaging 4.3% growth per annum.

Landlords have also reaped rewards, with prime central London rents rising from an average of £700 per week in Q3 2003 to £1,014 in Q2 2013 - a 44% increase, averaging 3.6% growth per annum.

The prime Central London market has also benefited from overseas investors keen to buy in the ‘safe haven’ of London amid political and monetary turmoil on the European and international stage.

Sue Foxley, head of research at Cluttons, said: “During King's reign the Central London market has experienced some extreme highs along with the occasional period of negative growth, especially following the 2008 crash when the market was starved of capital and mortgage lending plummeted.

"Since then, low interest rates have helped support the market, coupled with strong demand from overseas investors. As the new Governor Mark Carney arrives, we expect to see over 5% growth in prime Central London house prices this year, followed by increases of around 4% per annum between 2014 and 2018. Subdued rental growth is expected to persist this year with increases of 3% expected rising to 3.5% growth in 2014 and 4% growth in both 2015 and 2016.”


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