Historically, owning prime property in London has been a safe and savvy way to invest your money. People from across the globe have fought to own an exclusive piece of the capital. And it looked like this was going to continue forever. However, a disastrous turn of economic events at the end of 2022 with the introduction of former prime minister Liz Truss and former Chancellor Kwasi Kwarteng’s ‘mini-budget’.
Westminster’s Mini-Budget And Mortgage Interest Rates In London
The mini-budget announced by Kwarteng, among other things, announced an ill thought out tax cut, when everything recommended by the Bank of England’s monetary policy committee pointed towards not cutting tax to avoid a recession. As a result of the mini-budget, the Bank of England retaliated by hiking the base rate. This then caused a chain reaction where banks and building societies panicked and raised their own interest rates. This sent the average mortgage rate from around 3% to over 6% literally in a matter of hours.
Truss and Kwarteng both ultimately lost their jobs after less than 2 months of running the country. But these redundancies in government didn’t really change things and the mortgage and property market in London was still in a state of disarray. Mortgage borrowing just didn’t seem to make sense in many cases. People who otherwise would have bought a prime London property at a rate of 2% interest were being offered rates of 6% or 7%. Let’s put that into perspective. A mortgage of £1.5 million at the beginning of 2022 at a rate of 2% interest over 30 years would have cost £5,554 a month. The exact same property and loan at the end of 2022 could have easily shot up to £8,993 a month. A huge £3,439 per month increase or £41,260 a year.
Prime London Property Market
Because people were losing their confidence in the mortgage market and reluctant to take out finance with hugely over inflated interest rates, this had an immediate impact on the prime London property market. Property prices are usually driven by property scarcity and buyer competition. The competition causes potential buyers to bid against each other and offer above asking price for property. In London especially, this has always been the case. There are around 9 million people living in London as of 2023 with thousands more looking to move to the capital every year. That means millions of people wanting to own their own piece of the city, fighting against each other. However, the fallout of the mini-budget soon made buyers grind to a halt.
Interest in purchasing property slowed significantly and the competition just wasn’t there. People didn’t want to get large mortgages with high interest rates and they didn’t want to incur any more debt in such a volatile economy. This meant that people selling property had to actually reduce asking price, rather than accept higher offers, just to try and get a sale. Some sellers had their prime London property on the market for months and months before getting any interest. Most property analysis websites like Rightmove and Zoopla expected a huge decrease in the average value of property in the UK over the next 12 months.
Is London’s Prime Property Market Bouncing Back?
If you have read any of our previous articles over the last months or so, you will know that mortgage rates are finally coming back down. If you were to get a mortgage today (28th of February 2023) you are most likely to get an interest rate deal beginning with a 4. However there are several lenders already offering sub-4% interest rates of 3.99% and below, and it looks like rates will more or less plateau at about 3-3.5% for the foreseeable future. What does this mean for the property market? Well it means that more stability is coming back to the market, and buyers are regaining some confidence in purchasing.
Estate agent’s Knight Frank recently released the results of ongoing research into property trends in London in 2023 so far. They found that property prices in central London were flat on a quarterly basis in February 2023, compared with a 0.6% decline in the last three months in 2022 following the mini-budget announcement. Prices of prime London property in outer London also rose by 0.2% in February 2023, the only time they have risen in 5 months. They also found that the number of new buyers enquiring in London in the first two months of 2023 was 28% higher than the five-year average.
Should I Invest In London Property – Mortgage Expert’s Opinion
So, what can we gain from the information provided by Knight Frank? I think it is clear that London’s property market is resilient. Perhaps more resilient than we expected. A lot of the country is still struggling with property prices and purchasing levels, but London is either stable or on the increase. We predict that within a year, the market will have returned to a more or less normal state and buying prime London property will again be a very sought after investment. Despite being higher than they have been over the last few years, mortgage interest rates are low and getting lower. Soon there will be deals in the mid to low 3%, which is very good.
One of the mortgage areas most impacted in London was the buy-to-let market. However, more buy-to-let lenders have lowered their affordability criteria, reduced their rates, and introduced new products over the last few months. Opening up the very lucrative London rental market again. In our eyes, the prime London property market is returning and it will be back with a bang!
If you or anyone you know is interested in purchasing a property in London and want to know what you can afford, how much it will cost you per month, and where the value of the property could be going, please give our team a call today.