Six things to know before investing in the London property market
When you’re looking for investments in property markets, there are plenty of things to consider. Location is one of the most significant factors with the London property market providing a great opportunity. Before you invest in the London housing market, take a look at these six things to keep an eye on prior to investment.
There are several things that you need to know before investing in the London property market, providing you with more insight into the value of your investments. These include:
When looking at property in a global city like London, you can’t just consider the state of the city itself. London impacts the rest of the world financially and politically, with the rest of the world having a similar impact on house prices in London. A key example of this is the Ukraine crisis in early 2022, as Russian oligarchs such as former Chelsea FC owner Roman Abramovic were forced to divest from properties in the UK. A series of high-value properties from billionaire portfolios became available, which drove down the prices of these high-end properties. The same exists across the property spectrum, with Paris gaining on London financially in a way that could lead to less interest in the city.
2. The wider housing market
The wider UK housing market is another fundamental factor in the way that house prices in London behave. Prices in London itself are far higher than prices anywhere else in the country, and any significant price falls in other major cities such as Birmingham, Leeds and Manchester could encourage people to buy elsewhere. This drives the London housing market down as owners look to compete and secure sales against portfolio owners across the country. Demand in London is high, but low prices can help other cities to compete.
3. Government policies
Government policies in recent years have been beneficial for people with a property portfolio, as house building has fallen down the list of government priorities in recent years. With housebuilding down at approximately 38,000 from April 2021 to March 2022, there is relatively little supply in place to match the increasing demand for housing. Potential future governments, or even local councils, could focus on building more affordable housing for people, increasing the supply of properties in the area and leading to a downtrend in the London property market forecast. This does, however, provide buy-to-let opportunities for savvy investors.
4. Emerging boroughs
London is a constantly changing and evolving city, with different boroughs focusing on development projects at different times and building their reputation in comparison to other parts of the city. Understanding this fully provides you with the opportunity to take full advantage of affordable opportunities. If there is a borough undergoing significant renovation and improvement over the next few years, investing in affordable properties in that area could see your property value skyrocket as your property’s value increases with the value of the land and the properties around it. Being attentive to the future needs of the market is an integral pillar of a strong property investment strategy.
5. Property market trends
As with any financial market, the London property market ebbs and flows depending on the levels of supply and demand over the years. This means that there are certain indicators to look for before the market starts to rise, and signs to divest in the event of a fall. For example, if a small number of investors are suddenly selling their properties at below market value, take care as a market fall could be incoming. Recognising these signs and examining property data over the years prepares you to respond to the very specific needs of the market.
6. Interest rates
Interest rates have a huge impact on the way that property markets work. The majority of people, including investors, use mortgages as a means of buying their properties. Any changes in interest rates can have a significant effect on the London property market forecast, as higher interest rates mean a higher cost of borrowing and a higher cost of mortgages in the long term. This pushes people’s drive to borrow down, taking house prices with it. Watch economic indicators such as inflation for any sign of interest rates going up in the near future. Interest rates recently increased, so watch any existing investments carefully.
What is happening to the London property market?
At the time of writing London house prices are up 6.9% year-on-year. People returning to the city after Covid are keeping demand relatively high. The property market in London is strong in comparison to the rest of the UK.
The national government has been missing homebuilding targets for years, and London’s financial strength has grown in that time in comparison to Birmingham and other major cities. This has been a consistent trend over the past decade, even throughout the “Northern Powerhouse” and “Levelling Up” programmes from the Cameron and Johnson governments.
It’s hard to say what will happen with property prices in 2023. Despite the rate of inflation increasing, developers are still creating both luxury and affordable housing in the city.
The unstable political situation seems to be more balanced now, with a likely 2024 election being the most likely time for a significant policy change.