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House prices fall in London but rise everywhere else in UK

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London house prices fell month on month in October, making the capital the only region in the UK to report a decline.

Prices in the city fell 0.9 per cent compared with September, compared with a 0.3 per cent increase across the UK, according to the Office for National Statistics. House prices increased 0.9 per cent or more in the north-east of England, West Midlands and Scotland.

Lawrence Bowles, director of research at the real estate company Savills, said the decline in London could be explained by the capital being far more reliant on mortgage debt than the rest of the country, with average loan-to-income ratios and total mortgage costs far higher.

“Affordability constraints are the number one reason why London’s house prices are underperforming the UK in the latest data,” he said, adding: “That means London house prices are more sensitive to changes in interest rates than elsewhere in the UK.”

Mortgage rates have surged in the past few months, reflecting expectations of higher medium-term borrowing costs, as the Bank of England tries to tackle high inflation.

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Separate data from mortgage provider Nationwide showed that the average mortgage payment rose to 56 per cent of earnings in the third quarter in London, up from a recent low of 48 per cent in the first quarter of 2020, and well above the national average of 34 per cent.

ONS data showed that in Lewisham, a London borough that ranks among those with the largest share of mortgage buyers, according to real estate consultancy Knight Frank, house prices fell 1.5 per cent from September to October.

Tom Bill, head of UK residential research at Knight Frank, said he expected affordability constraints would result in property prices in the capital underperforming “the rest of the country over the next three to five years”.

ONS figures also showed that terraced and semi-detached London properties had driven the monthly fall, with declines of 1.4 per cent and 0.9 per cent, respectively.

London also registered the weakest annual rate of house price growth in October, at 6.7 per cent, less than half the rate in most regions including the north of and south-west of England and the Midlands, according to the ONS data. Nationally, prices rose 12.6 per cent compared with October 2021.

House price growth in London has underperformed the national average since the start of the coronavirus pandemic, triggered by people moving out of the capital in search of more space, and this has continued since the economy has reopened.

UK average house prices are 27 per cent above pre-pandemic levels of February 2020 — more than double the 13 per cent rise registered in London.

More recent unofficial data for November, including from the mortgage providers Nationwide and Halifax, showed UK house prices fell last month compared with October. Most economists expect house price declines to accelerate in the coming months.

Gabriella Dickens, senior UK economist at Pantheon Macroeconomics, said that because of high mortgage rates, rising unemployment and falling real household incomes, she expected “a peak-to-trough fall in house prices equal to around 8 per cent over the next 12 months, reversing around one-third of the increase since the pandemic.”

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