Is now the time to buy in London in 2023?

London

The London housing market is one of the most expensive in the world. Many potential buyers are often left wondering whether now the right time to buy in London. With the recent uncertainty surrounding the UK economy, it can be difficult to make an informed decision. This blog will examine the current market conditions in London and provide guidance to help potential buyers decide if now is the right time to buy.

The big question many people will be asking is the current economic and political turmoil, an opportunity to get a on to the ladder in one of the world’s most important property markets?

The reality                                                                         

A quick search of the web will give you a variety of opinions. You will hear commentators say prices will decline by more than 30%, others say the lack of supply will mean a price decline will not be as deep as what many think. The reality is no one knows.  The only thing is that most commentators are almost always wrong!

As a property purchaser all you can do is do your own research and make the best decision you can with the information you have. However, a lack of research will lead to fear and disappointment for those who rush in without doing their research.

Buying a home for yourself

Buying a property for yourself to use rather than an investment is a completely different decision to purchasing a property for investment. The right answer is the right time to buy is when you can afford it!

The question is not whether you need to time the market, but what are your alternatives? The one thing most people don’t say is that if property prices go down rent prices will likely go up in the short-term. London suffers from a severe lack of rental property so if your lease is coming to an end in 2022 there is a pretty good chance your rent is going up!

With that in mind the real question is which risk would you prefer?

  1. You buy a proprty and prices go down in the short-term. You will be in a position that property is worth less than you pay for, for a period of time; or
  2. Don’t buy, and you pay increased rental costs and can’t purchase at the bottom of the market. The chances are you wont know it was the bottom of the market until after the event.

In making your decision, you need to factor the following:

  1. Rent is not your only cost – buildings need maintenance so allow for the costs of repairs and other unexpected costs.
  2. Interest rates – could continue to rise or stay high for a long period, don’t assume they will go down or won’t go up further.
  3. Do your due diligence – if you don’t understand how leasehold works go and find out!

Buying as an investor

As an investor the great news is you hold all the cards. The price you pay for a property is everything, consider the following. It is possible buy an exceptional quality property for too much and turn it in to a poor investment. On the flip side you can buy a real poor quality property at a great price and turn it into a great property.

As an investor the key is to do your homework and be able to act. Whatever happens in the market, the reality is there will be pricing pressure in 2023 and 2024.

In London, there are 9,483 properties currently under construction due to complete 2023 and unsold. As an investor these are the ones where you are likely to have the greatest purchasing power – so you should focus on those.

Factors which will impact pricing?

It is impossible to say what factors will have the biggest impact on property prices in London. Below we discuss those factors which we think are important.

Demand

Demand is driven by increases in population. The UK recorded one of its highest net migration figures in many years in the year to June 2022 at 504,000.

London has had the highest population growth of all UK cities.

Year1991200120112021
Population6.68 m7.17 m8.17 m8.8 m

Net migration in London declined during the covid pandemic. However, there is now evidence to suggest many people are beginning to return to London.

How much new housing is required

Various government studies have been undertaken to determine; how much new housing is required to meet new demand.

  • London Strategic Housing Market Assessment – 66,000 new homes p.a.
  • Local Housing Need – 72,000 new homes p.a.

Current demand for housing seems set to continue in the short to medium term. However, a rapid decline in London population growth such as another covid crisis would take pressure off housing demand.

Supply

Housing supply needs to be considered in two parts, the new build market, and the secondary market. We have written a detailed article on London’s housing supply issues here.

housing shortage PropTech Pioneer Is now the time to buy in London in 2023?

New build market

Construction completions are hovering at circa. 20,000 p.a. although it is likely new home completions will decline further. Construction starts, a leading indicator of new supply, have been declining from 33,775 in 2015 to 16,805 in 2021.

At the same time the number of new apartments which have completed but not sold has steadily increased, from 51 in 2015 to 1,794 in 3,085 in 2021. Of these, 58% of these properties are in Inner London with the largest proportions in Tower Hamlets (440) and Westminster (393).  In addition to the above 9,843 new properties are due to complete before the end of 2023 and are currently unsold.

Construction starts are reducing and unsold but completed stock is increasing. The total number of sales in the new build market in London has declined. From 26,323 in 2015 to 18,576 in 2021.

How much pricing reduces in the new build market is largely down to how new homes are absorbed by demand. And how much developers need to discount the stock to sell it. However, the one thing which seems very clear, is supply will certainly reduce in the short to medium term as developers reduce their new construction pipelines.

Second-hand market

The number of properties advertised for sale in London peaked in July 2018. The number of properties in each different property type is summarised below.

 July 2018Dec 2022% Change
Detached2,4672,329-6%
Semi Detached6,4693,929-39%
Terraced8,5265,138-40%
Flats47,99239,209-18%

The number of properties advertised for sale by number of bedrooms reduced for all property types over the same period.

 July 2018Dec 2022% Change
5+ Bedrooms4,7233,127-34%
4 Bedrooms6,5664,229-36%
3 Bedrooms15,67710,549-33%
2 Bedrooms25,90220,122-22%
1 Bedroom14,06812,481-11%

Average time on the market

Over the same period the average time on the market has increased for flats and terraced houses.

 July 2018Dec 2022% Change
Detached207 days167 days-19%
Semi Detached139 days125 days-10%
Terraced149 days151 days1%
Flats189 days238 days26%
All179 days217 days21%

This is broken down by average time on the market by number of bedrooms.

 July 2018Dec 2022% Change
5+ Bedrooms207 days184 days-11%
4 Bedrooms164 days173 days5%
3 Bedrooms170 days199 days17%
2 Bedrooms176 days225 days28%
1 Bedroom186 days236 days27%
All179 days217 days21%

Number of sales transactions

The total number of sales transactions drastically fell from an average of 154,559 p.a. between 1996 and 2008. In the year ending March 2022 there were 84,919 transactions.

Average number of trasnactions London PropTech Pioneer Is now the time to buy in London in 2023?

Average House prices

Average house prices in London have risen consistently between Jan 2005 from £231,321 to £552,755 in August 2022. However, average prices, decreased from £298,559 in October 2007 to £245,351 in April 2009 a reduction of 17.82%. Pricing recovered to £290,379 in March 2012.

Average House Price London PropTech Pioneer Is now the time to buy in London in 2023?

Interest Rates

Interest rates spiked at the start of November in response to the Truss government mini budget. Among the top ten UK lenders: average 2-year rates hit 5.90% at the start of November but have fallen back to 5.38%. Average 5-year rates have dropped from 5.67% to 5.07% over the same period.

UK Fixed Interest Rates 1 PropTech Pioneer Is now the time to buy in London in 2023?

While interest rate have increased significantly, they remain broadly in line with longer-term average mortgage interest rates.

Proportion of mortgages with LTV below 90%

There is no doubt that the increase in interest rates will have a significant impact on a number of homeowners. It is estimated that 1.8 million homeowners in the UK will come to the end of fixed-rate deals in 2023.

These owners will have the option to have their loan revert to the standard variable rate, or lock-in a new fixed rate. It is anticipated these homeowners will face steep increases in repayments and in some scenarios their rate will quadruple.

However, the number of owners who are likely to go into negative equity is likely to be much lower as the average deposit has increased significantly since 2007.

of mortgages with LTV 90 PropTech Pioneer Is now the time to buy in London in 2023?

Conclusion

Given the fundamentals underpinning the London housing market, property prices will not crash. There may be a correction in pricing, but for the those with a long term view, there will be much to gain.

The key will be buying spotting the opportunity and negotiating the best possible price. Property developers with completed stock are where you will be able to negoiate the best price. Developers need to sell through their stock. The unsold properties which are completed are costing money and they need to move on.

One of the biggest advantages for investors buying a complete apartment, is that you will get almost immediate income. You won’t need to have your deposit out for a long time generating no return. If you’re an owner occupier, your property will be ready to move into. And you’ll get all the added benefits of buying a new build. Learn more about this here.

Are you wondering if now the time to buy in London?

If you are thinking about buying a property in London, you need to make sure you do your homework before you buy. Mistakes made investing in property are very expensive to fix.

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[H2] Du Val Global

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