Sellers Begin to Buckle as Sky-High London Home Prices Decline

  • Bank valuers are saying home prices are lower than offers
  • Rental prices continue to decline in upscale neighborhoods

Satyajit Sahu sold his home in southeast London’s Orpington district last month because he says he was worried that Brexit was likely to hurt the prospects of U.K. homeowners.

News that home prices in the city are now falling at their fastest pace since the financial crisis “is uncomfortable for the financial outlook of U.K.," Sahu said. We sold “in time I guess.” The property was purchased for the asking price, two days after being offered on the market, the London-based doctor said.

Home price declines for the most expensive homes are rippling out to the rest of the city as tax increases for landlords, fears about the economy after the Brexit vote and high values damp demand. Home values fell 2.7 percent in the year through September, the most since 2009, according to Acadata and LSL Property Services. The top end of the market has been falling further for longer -- values are down 15 percent from the peak in September 2014, according to data compiled by Savills Plc.

Tipping Point

“We are approaching a tipping point,” Lawrence Bowles, a residential research analyst at broker Savills Plc said. “We have seen transactions in London fall, particularly for home movers since the great financial crisis. Eventually you get to a point where people are fed up waiting and accept a price cut to get a sale.”

Buyers seeking mortgages for home purchases in some parts of London are being told by valuers that properties are worth less than they’ve offered, according to Ray Boulger, senior mortgage technical manager at mortgage broker John Charcol. That leaves them with the option of dropping the sale, using more cash or bargaining for a lower price, he said.

It’s not just sales that are falling. Rents fell 1 percent in Greater London in September from August, according to rental index HomeLet. The cost of leasing a home in the best districts is down 3 percent in the past year, according to broker Knight Frank.

The rental “market is continuing on a downward trajectory,” Mark Wilson, the founder of broker Global Apartments, said in a survey published Oct. 12 by the Royal Institution of Chartered Surveyors “We will know when it hits the floor, or that there is an equilibrium, when the phones start ringing like they used to. Landlords continue to be fantasists.”

Valuer Peter Tym was more succinct in the same poll: “Brexit effect reducing demand.”

The lack of transactions is hurting the share prices of realtors, who are also facing competition from web-based firms such as Purplebricks Group Plc and a proposed government ban on fees for tenants renting residential property. Foxtons Group Plc is down more than 34 percent this year and Countrywide Plc, which owns the Hamptons International brand, is down 35 percent.

Unsold New Homes

Sales of new homes are also lagging behind the numbers being built. Unsold London homes under construction rose to a record of almost 13,000 at the end of the third quarter compared with about 12,600 at the end of last year, according to a report by Molior London seen by Bloomberg News.

Still, publicly-traded homebuilders in London have soared as the government’s Help to Buy program, which offers interest-free loans for up to 40 percent of the price for homes bought for 600,000 pounds or less in the U.K. capital, stimulates sales in the cheapest districts. Berkeley Group Holdings Plc has gained 38 percent this year and Barratt Developments Plc rose 46 percent in the same period.

The U.K. government’s decision to allocate more capital to the program is unlikely to stimulate the market in London again, according to four of five economists surveyed by Bloomberg News. The hike in stamp duty tax for high-end properties in 2014 and for landlords last year will continue to outweigh the impact of the loan program, said Alan Clarke, an economist at Scotiabank Europe Plc.

Sahu, the doctor, now plans to build his own house. Brexit has hit him there as well -- he says the cost of doing so has risen by about 20 percent since the referendum because of the pound’s weakness and a scarcity of labor.

— With assistance by Harumi Ichikura

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