- Demand for flats and city centre properties is starting to return
- However, London sales price growth is likely to continue to lag
A return in the type of heady house price inflation not seen since the months immediately prior to the great financial crash was always going to spark fears of a market bubble. UK average sales prices leaped 10.2 per cent in March, according to the Office for National Statistics latest house price index, the highest rate since August 2007.
Beneath the startling headline growth rate, post-pandemic trends have become more entrenched. The regions outside London stole a greater lead on the capital, while the rate of price growth enjoyed by detached homes continued to race ahead of flats amid a search for more space and increased budgets imbued by the stamp duty break. More broadly, inner city locations have become less desirable as commute times have been pushed down the priority list by homebuyers amid the pandemic.
Could the easing of lockdown restrictions halt this market divergence? Potentially, according to analysis by property portal Rightmove. City centre locations and flats are staging a comeback, according to the site. Demand for the latter jumped 39 per cent between January and April, the biggest rise of any property type and above the 26 per cent increase recorded for detached homes. Demand is measured by the number of people contacting estate agents to request more details about a property advertised on Rightmove.
Meanwhile, a study of the largest city centres across the country revealed a rise in average buyer demand of 35 per cent in April compared with January, with cities including York, Sheffield and Newcastle indicating increases of more than 50 per cent. The growth in demand for urban locations in April outperformed that of rural locations for the first time since before the pandemic started.
Why the shift? First-time buyers could play a part. Agents have reported a “marked uptick” in demand from those looking to get on the property ladder, who have managed to save larger deposits during successive lockdowns, according to Rightmove’s Tim Bannister. The introduction of the government’s 95 per cent mortgage guarantee scheme last month has also provided a boost, according to the property portal.
Stagnant sales prices, which have underperformed the national average, have also aided affordability. An improvement here will be the proof of a recovery in city centre markets.
While tepid sales price growth might help kickstart demand in UK cities more broadly, the barriers facing the London market are steeper. On the domestic front, affordability is chief among them. The mortgage guarantee scheme may allow those with a deposit of as little as 5 per cent to buy a home, but mortgage regulations mean those seeking to purchase the average London home would still need a six-figure household income. For overseas buyers – a crucial source of demand at the prime-end of the market – concerns over new variants of the virus and enduring travel restrictions may yet hinder their return.
The extension of the stamp duty break should mean the surge in average house prices nationally continues during the coming months, but so too will the underperformance of the capital.
