London’s property prices are beginning to slide because the dampening effect of Brexit is beating the stimulus of low interest rates.
The UK’s vote to leave the European Union helped slice just over £30,000 off the average London property price in July , according to a report from estate agent Haart cited in the Guardian.
The average price fell from £558,760 to £527,349 in London, the largest month-on-month decline recorded by the company. Nationally prices shrank by 0.9%.
The Bank of England last week cut interest rates in half to 0.25% in an effort to reinforce the economy against any Brexit shock. Low interest rates are generally seen as a way to help buoy up property prices but the Brexit effect seems to be more powerful.
And it is not just the houses that are losing value, but also the land earmarked to build them on.
In prime central London, average residential development land prices fell for the third consecutive quarter, dropping by 6.9%, according to a report by Knight Frank published on Wednesday. Average values are down 9.4% on an annual basis, Knight Frank said, returning to 2014 levels.
While Brexit has played a role in subduing prices, high construction costs have also helped lower land rates, Knight Frank said.
But there is no doubt that Brexit has had an effect on prices and transaction volume. On Tuesday, property group Savills said earnings on commercial transactions plunged 23% in six months to June 30, as investors waited for the outcome of the June 23 referendum.
“In Central London, many of the hitherto significant buyers (Sovereign Wealth, International Private Equity) elected to remain largely on the sidelines during this period, which opened the way for Private Wealth from areas such as the Middle East to transact,” Savills said.
Property prices are increasingly depending on the battle between political uncertainty and low interest rates. The more political uncertainty there is, the longer interest rates will stay low and the easier it becomes to borrow money to buy a house. But high political uncertainty also makes buying a house in London less appealing for those who want to invest from abroad or for those looking for a second property.
The effect on the economy is already starting to be felt. The number of new available jobs in the the UK’s financial centre fell 12% from June to July to just under 8,000, according to a survey by Morgan McKinley.
Last month the Royal Institute of Chartered Surveyors said that new buyer enquiries “declined significantly” in June, with 36% more chartered surveyors reporting a fall in interest as part of the June housing survey.
That was the lowest reading since mid-2008 when the financial crisis was in full swing.