UK House Prices Experience ‘Reverse Ripple’

Recent commentary from a UK-based estate agents suggest that British house prices are experiencing a ‘reverse ripple’ effect, as Central London loses its influence over the rest of the nation.

Defying convention

Traditionally, UK house price rises originate in Central London. The heart of our capital is home to some of the biggest businesses and wealthiest individuals on earth, so demand for Central London property has been high historically. This pushes up Central London residential property values, sparking a ripple which hits outer London, then South East England and finally the rest of the nation.

The global financial crisis of 2008 was devastating for regional British housing markets. Many areas struggled to recover and initially, evidence suggested that as usual, residential real estate rises would originate in Central London. Here residential prices recovered strongly from the downturn and in recent years, value expansion in our nation’s capital has outpaced the rest of UK by significant margins.

London’s house price growth is no longer expanding rapidly. Increasingly, buyers see London housing as unaffordable. This problem has been compounded by the introduction of higher stamp duty rates on costly homes in late 2014. According to the International Business Times, sales of homes worth over £1m in England and Wales dropped by 62.5% in the last two years. This proved disastrous for London, where one in four homes is set be worth over £1m by 2030, the Financial Times writes.

Reverse ripple

Consequently, Haart Estate Agents argues, Central London buyers now face higher taxes and stricter mortgage affordability checks, denting demand. Commenting, Haart CEO Paul Smith was quoted by Property Investor Today saying: “Typically resilient, London was the quickest to recover following in the 2008 recession. However, the multitude of blows that have befallen its property market over the last couple of months are obviously proving too much to bear.”

However while price growth is slowing down in Central London, it is speeding up in England’s regions and slowly filtering through to areas of Outer London, creating a ‘reverse ripple’ effect. Expanding, Smith noted: “The evidence from our branches is that areas around 100 miles from the capital are where the market is reviving, and this is spreading towards the South East and London – a complete reversal of the traditional ‘London first’ pattern we’ve grown used to.”

Explaining this theory further, Smith went on to comment: “This could be a historic realignment of our property market away from central London, or a purely post-Brexit ‘flash in the pan’ phenomenon. What is clear is that since June, Britain’s property market has been turned on its head and London, for a change, is beginning to rely on the rest of the country for life-support.” In Q3 2016, the Telegraph notes, London had the weakest residential property market out of the UK’s 20 biggest cities.

Major re-alignment

It appears as though the UK housing market is experiencing a re-alignment. While house price growth is slowing in Central London, it is expanding in cities such as Birmingham, Liverpool and Manchester. In these places values are low, so house prices have a shallow base to rise from, in contrast with Central London, which is increasingly looking unaffordable to buyers. Whether this is evidence of a reverse ripple trend, or a quirk of 2016’s unique political environment, remains to be seen.