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London house prices fall at fastest rate in 10 years

Jonathan Wright

Jonathan Wright - Fidelity Personal Investing

House prices in London have suffered their biggest fall in a decade.

London house prices fall at fastest rate in 10 years

In the latest Office for National Statistics (ONS) report on UK house prices, the cost of a home in the capital was 4.4% lower in May than a year earlier. This is the largest drop in London prices since the 7.0% annual fall recorded in August 2009, during the global financial crisis.

Looking wider across the regions, average house prices in the UK increased by 1.2% in the year to May 2019, but down from 1.5% recorded in April 2019.

While London has suffered, the North West of England saw the highest growth over the year, with prices rising 3.4%, followed by the West Midlands at 2.7%.

However with the average London house now costing £457,000, this is still considerably higher than the UK average of £229,000 and the capital remains the most expensive place to buy a house in the UK.

For many Londoners, especially first-time buyers, prices are still way out of reach. Despite falling over the past year, London house prices have still more than doubled over the last 15 years. Low interest rates have helped fuel this. The financial crisis brought the base rate down to a record low of 0.25% and 10 years later rates are still historically low at 0.75%.

But it’s not just a question of borrowing, what you earn counts too and how affordable the monthly mortgage payments will be. According to the Resolution Foundation house prices in the capital have increased six times faster than earnings since early 2011, making home ownership in London a distant dream for many.

Another factor hanging over the future of London prices is of course Brexit, with the current uncertainty a reason for many to put off making such a significant purchase. Recent comments from the Bank of England that interest rates aren’t expected to rise over the short-term or indeed could be cut to near 0% if the UK leaves the EU without a trade deal, do provide some relief for borrowers.

However, at these record low levels the cost of financing a home isn’t going to get much cheaper either. This could mean that in future properties will not rise in value as strongly as they have done in the past if rates start rising again and affordability of existing debt starts to become an issue.

With residential property making up such a large proportion of most people’s wealth, it’s a timely reminder of the importance of investing across the various asset classes over the long term.

Restrictions on tax relief for additional homes, as well as increased rates of stamp duty, have dampened the appeal of buy-to-let properties as an investment. Investing in funds within a tax-efficient wrapper such as an ISA or SIPP is one way you can ensure you’re not excessively exposed to one particular asset class.

There are many funds available that invest in different assets like shares, bonds and commodities, as well as property. These can complement the investment you have already made in purchasing your home.

A good starting point is the Fidelity Select 50 range where our experts reveal their favourite fund choices. The funds are categorised across a variety of asset classes such as shares or bonds, and geographical regions from close to home to further afield.

Or the Fidelity Select 50 Balanced Fund provides a simple, ready-made fund solution that invests in a mixture of different Select 50 funds, actively managed to provide a balance of different asset classes.

More on the Select 50

Important Information

The value of investments and the income from them can go down as well as up, so you may not get back what you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55. The Select 50 is not a recommendation to buy or sell a fund. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment. Fidelity Personal Investing does not give personal recommendations. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser.