What’s happening in London’s residential property market?

Many events affect the demand and supply of the capital’s property, and therefore valuations. But what is currently impacting London’s residential property market? What should buyers (and sellers) be aware of?
Published 31 March
7 mins

The creator of the modern dictionary gave us far more than individual definitions for words. Dr Samuel Johnson was also a biographer, critic, essayist, editor, playwright and poet, and left us with hundreds of great quotes. In 1777, he penned one of his most famous statements: “You find no man, at all intellectual, who is willing to leave London. Sir, when a man is tired of London, he is tired of life; for there is in London all that life can afford.” It’s a sentiment that, some 250 years later, still holds true for many. It’s why there is solid demand for London’s residential property.

For others, however, the temptations of the biggest UK city have taken a knock over the last decade, particularly when so many of the creative, gastronomic and intellectual motivations closed down in 2020/21 and some have yet to completely return to normal. So, despite the average house price in the UK increasing by 9.6% in January 2022 year on year, in London that increase was just 2.2%, marking the lowest growth of all the country’s regions, according to the Office for National Statistics (ONS).

However, that doesn’t mean a property that you are eyeing will have increased in value too, given these are based on averages. Trying to set out the characteristics for the ‘average house’ is impossible as it depends on a variety of factors, such as location and the incredible breadth of housing stock. For example, our country’s property is often cited as being the oldest in Europe – probably the world – and is only being replaced very slowly. So while that may translate into a property with ‘character’ for some, for others it spells problems due to the issues related to older buildings. This impacts buyer interest and the sale price.

To help get a handle on just what is happening, therefore, here are three topics we often discuss with clients.

Available housing stock is still limited

Although we may be starting to see the supply of new homes for sale inch higher in some areas of the property market, many believe the market as a whole is still being ‘squeezed’ by the limited levels of stock, continuing a trend that started in the second half of 2021. Data published by LonRes in March for its three prime catchment areas underscores this as the overall number of homes for sale was down 16% versus January 2021, while the figures for rental properties were 67% lower.

And the squeeze in supply is being exacerbated by an increase in demand, as shown by the total transactions that are completing and since home buyers in Q4 2021 paid more stamp duty land tax in England and Northern Ireland than in the entire 328-year history of the tax.

Yet again, the type of property being bought remains a key factor. Again according to LonRes, the number of transactions in its lowest price band (£500,000 to £1,000,000) was still 20% off its 2014 peak in the 12 months ending January 2022. Meanwhile, activity for properties in the £5m+ category is back to similar levels to those in 2014 over the same period.

But, overall, while this makes for a more difficult environment for clients looking to buy (or rent), as there will be a lot of competition for the ‘better’ properties being put up for sale, it’s good news if you own a house to rent out, given this area of the market is the one with the lowest levels of supply. As a result, rents saw annual growth in January 2022 of 22.5% across LonRes’s prime locations.

Is the ‘race for space’ still a factor?

While 2020/21 saw buyers’ preference lean heavily towards houses rather than flats, with particularly strong interest in housing with access to a (private) garden, 2022 may see that trend flatten as buyers realise we are unlikely to be subject to any more lockdowns and the (sometimes significant) price shifts may be enough of a tipping point for buyers to compromise on of their wish list and look at flats.

This demand is also fuelled by the rise of the so-called ‘remorseful’ buyer who left London during lockdown, but is now looking for a suitable foothold, perhaps near the office for their increasingly frequent trips in, and may consider a flat despite the ongoing issues linked to the External Wall System Fire Review (EWS1) certification requirements. And some people want to return having missed the vibrancy of London’s lures, but realise a flat will suffice given how much more constricted your money is in the capital versus beyond the M25.

But while there are a lot of positive consideration points for flats, this has not necessarily developed into a meaningful movement in the market. A recent poll among mortgage brokers published by BuyAssociation, a membership organisation for the property sector, highlighted that some 60% do not believe the desire for larger square footage is over, with just 23% believing the race for space may be coming to an end. This aligns with research from the recruitment firm Randstad UK, published in early March, which asked workers what they missed most about office life when working from home. The most popular response, from 52% of people, was “nothing”!

Rising costs

UK inflation hit a 30-year of 6.2% in February 2022, according to the ONS, and expectations are for it to push higher still given prices were already rising as demand had unwound from the pandemic faster than supply could. And this number probably only includes a little of the impact that the Russian-Ukraine war is having on energy prices and which is forcing up food prices too.

The rising costs may eventually mean that people think twice about stretching to buy anything, especially since inflation had been expected to be a temporary blot on the landscape and UK salary growth had, as a result, generally been held back below headline inflation.

On top of those increases, on 17 March 2022, the Bank of England raised interest base rates for a third time (following rate increases in December 2021 to 0.25% and in February 2022 to 0.5%) and although rates of 0.75% are by no means high, they are at their highest since March 2009, apart for a 19-month period from August 2018 to March 2020 when rates also reached 0.75%. Any increase in the Bank of England’s rates quickly feeds through to increased loan and mortgage rates as the cost of borrowing for lenders rises.

And bank rates are likely to continue to increase given inflation of 6.2% is a long way off the UK government’s set target of 2%. Comments made by the Bank of England’s governor, Andrew Bailey, on 28 March, also back more base rate increases as he linked the rising commodity prices to UK inflation and the need for it to be cooled by higher interest rates.

So what does all this mean for you?

For those in the market for property, you may want to consider – depending on your circumstances – a fixed rate mortgage. Setting the rate for multiple years may mean you are paying more in the future if the premise for increasing rates was to be removed, but given markets had predicted the Bank of England base rate would hit 2% by February 2023, even before Bailey’s predictions, it may prove to be a wise choice. In addition, fixing the rate would also give you certainty over one line of costs over the coming months.

There is also the option to borrow against your investments, which may have benefitted from the general increase in portfolio values over the last few years, through an approach called Lombard lending, or look to finance a property purchase with a combination of the two.

It’s also worth bearing in mind that house prices over the coming year in the capital are still predicated to grind higher by between 2% and 4%, according to LonRes, despite the challenges. And while that doesn’t sound a lot, it masks the details for the different districts.  After all, although growth in London as a whole in 2021 was 2.2%, growth in across areas can be very different, as rolling three-month data from the property aggregator Rightmove highlights. It’s data shows Bromley and Chelsea up 11.5% and 10.6% respectively (at the time of writing), while other boroughs had dropped in value, such as Westminster (-1.4%) and Lambeth (-1.3%).

So if you are interested in a property, why wait? Just get in touch as we have a range of mortgage and Lombard lending options available and would be happy to talk through any financing requirements, with your individual circumstances as the basis for the conversation.

Clients of Nedbank Private Wealth can get in touch with their private banker directly to understand how we are helping clients during the current pandemic, or call +44 (0)1624 645000 to speak to our client services team.

If you would like to find out more about how we can help clients borrow against property or investments, please contact us on the same number as above, or complete a form using the links towards the end of the page.

Sources: Nedbank Private Wealth; BuyAssociation; Knight Frank; London’s Surveyors and Valuers; LonRes; Rightmove; Savills; and UK Government.

Your home may be at risk if you do not keep up-to-date with your payments on your mortgage or any other loan secured against it.

about the author

Chiraag Patel

Chiraag Patel

Chiraag joined the team in 2021 with responsibility for Nedbank Private Wealth’s lending proposition in the UK. His primary role is to support clients’ borrowing requirements, as well as help clients who have been introduced by mortgage brokers and other property intermediaries.


With 18 years’ experience as an adviser in the property teams of financial services firms, with an emphasis on serving the high net worth market, Chiraag’s previous roles include time as a credit specialist at Santander Private Banking and Barclays.


He holds a Certificate in Mortgage Advice and Practice (CeMAP) and graduated from the Queen Mary University of London with a BSc (Hons).

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