House prices in London down 25pc since Brexit

Demand from wealthy international buyers fails to bounce back

The London housing market has seen a dramatic decline since the Brexit referendum in 2016. Prices have fallen steadily as global factors deterred foreign investment, leading to a 25% drop in real terms according to a new report. As affordability reaches crisis levels for locals, the market remains overvalued and lacks urgency among overseas buyers to correct. This post will explore the data on London’s post-Brexit housing crash and what it means for current and prospective homeowners.

Introduction

When adjusting for inflation, London house prices have been trending downwards ever since the divisive Brexit vote. Demand from wealthy international property investors, who previously propped up the premium market, dried up over worries about Brexit’s impact on London’s future as a global finance hub. Experts hoped demand would rebound as pandemic travel restrictions lifted, but a new report by UBS bank reveals prices remain depressed without renewed foreign interest. While unaffordable for many Londoners, the market is still overvalued according to measures of income. We’ll analyze the report findings on the magnitude of the crash so far and the bleak outlook without more robust global demand.

Magnitude of the Price Crash

According to the UBS report, London properties have shed 14% of their value over the past year. The average London home now costs £534,000, down almost £10,000 since 2022. This double digit annual decline is the worst seen since the 2008 financial crisis. Adjusting for inflation, prices are down 25% from their peak in the years after the Brexit referendum. On top of depressed international investment, rising mortgage rates have deterred domestic buyers as the cost of financing soars. London’s premium luxury market has avoided the worst declines but largely stagnated without its usual wealthy foreign buyers. For them, urgency still lacks to return to the London market according to real estate agencies.

Causes and Ongoing Overvaluation

What made prices detach so severely from local fundamentals? Brexit fears that London would lose status caused foreign investors to ditch properties or halt new acquisitions. This took away crucial support at the top end. Rising rates then priced out many domestically. Despite the quarter price real crash, London remains overvalued fundamentally. Homes now cost around ten times the average Londoner’s annual earnings. This makes purchasing extremely difficult, especially with far higher mortgage rates than the years preceding Brexit. If prices better reflected local affordability, they would need to come down further according to the metrics. Other major global cities like Munich and Stockholm face similar overvaluation issues in the analysis.

Bleak Outlook and Affordability Crisis

What is the future outlook and solution for London’s housing market? In short, bleak without more strong global demand. As one analyst put it, the London market likely needs an influx of wealthy international buyers to stimulate growth again. Relying on local affordability to correct the market would require substantial further price declines. Making matters worse, rents in London rose at the fastest rate on record over the past year. This rental squeeze leaves potential buyers with little disposable income to save for a down payment. Many face delaying homeownership indefinitely. While pandemic era stimulus and savings provided a temporary boost, fundamentals now weigh heavily on the London housing market. It remains in a highly overvalued position despite the steep Brexit crash. Without more global capital flows, significant downward pressure on prices persists as rents explode.

In summary, here are the key points made in this analysis:

• London house prices have fallen 25% in real terms since the Brexit vote as foreign investment dried up
• The premium market remained stagnant without its usual wealthy overseas buyers
• Housing remains overvalued compared to local incomes, requiring further declines to align with affordability
• Mortgage rate rises have priced out domestic buyers, amplifying the crash
• With surging rents crushing savings, the outlook looks bleak without renewed global demand
• London likely needs an influx of international capital to stimulate growth and stabilize pricing again

The London property market faces an uphill battle to recover from policies and global events that drove away foreign investment. While prices corrected substantially, local affordability metrics indicate the need for further declines absent more global demand. With rents skyrocketing, potential local buyers have little means to save and enter the market. The post-Brexit era has been defined by a historic housing crash with no clear path to renewed growth unless overseas buyers return.