Is the London Property Market Going to Crash in 2022

In contrast to much of the rest of the UK, London’s usually buoyant market saw house prices grow only slightly. Is London’s slower growth a normal part of the UK property market cycle, or is the London property market going to crash in 2022?

The last 18 months have been an exciting time in the UK housing market with never-before-seen house prices across the country. With a series of lockdowns, residents across the UK were rethinking their living spaces and we saw more people than ever flocking from the capital.

We take a look at property market predictions, the recent trends of the London property market compared to other regions in the UK, what could happen in the market in 2022 and whether prices will rise, remain stable or crash.

London Property Market: Recent Trends

Since the start of the pandemic, London property market news focused on how house prices were outpaced by regional markets.

While areas of the UK saw record rises in property price growth, the London housing market had the lowest annual price growth of any region in the UK at around 5%, compared with the South West which recorded the highest at 12.5%

It’s important to keep in mind a couple of trends that impacted London house price growth:

• Firstly, the pandemic saw the start of a “race for space”. With consecutive lockdowns and work from home trends, we saw more people looking to relocate to suburban areas where they could get more indoor and outdoor space for their money.

• Secondly, the Stamp Duty waiver had a much bigger impact on buyer demand outside of London.

London Property Trends in 2022

Right now, the current average price of a house in the UK is £272,992, almost £34,000 higher than at the start of the pandemic. At the end of 2021, the average value of a property in London reached £519,934.

The UK housing market is forecast to rise 3.5% in 2022. The North will see the highest rises, due to lower property prices and a smaller house price to earnings ratio.

In London in 2022, house price growth of around 1% is expected and London property prices are predicted to underperform the rest of the country. But the rate of growth for properties in the capital may slightly increase and looking to 2024, house prices are expected to rise by 7% for Greater London.

Will the London Property Market Crash?

With the rest of the country outperforming the London housing market and property prices at record levels, some are speculating the market may crash. But a few factors should be taken into consideration:

Property Market Cycle

With the UK property market cycle in its current stage, it’s normal for the rest of the country to be outperforming the capital.

Pandemic Trends

The UK property market was thrown a curveball with the pandemic as people searched for more space for less money, which had an impact on the location and types of properties buyers were searching for more than any other time in the market’s history.

Affordability

Slower house price growth in the capital doesn’t mean a crash is coming. The most impacting factor in the near future will actually be affordability. London’s already high property values – where the average home in the market is £520,000 – limits what people can afford.

Rising Interest Rates

Something that could decrease the price of London properties is an increase in interest rates, which would reduce the budget of buyers. With inflation on the rise, the cheap mortgage deals that fueled the market in 2021 may be increasingly difficult to find. That said, interest rates remain low compared to historical rates.

Supply and Demand

Another factor not to be overlooked is the housing stock supply and demand imbalance. The UK is facing a shortfall in housing stock and the limited supply of available properties may mean we don’t see property prices plummeting in the capital as some might predict.

Overall, the boom in UK house prices may slow down by the end of 2022 as household budgets reach their limits. The London property market is expected to slow and normalise in 2022 and 2023. Rather than a crash, we can expect house prices to remain steady or slightly fall, but with the unpredictability around COVID-19 and the UK’s economic performance, nothing is completely certain.

FAQ

Will the London property market recover?

As life steadily returns to normal in the next few years and international travel once again picks up, many expect central London’s housing market to pick back up as international buyers, students and tourists return to the capital, especially the luxury market in the central areas.

Will flats go up in value?

While not all London flats are expected to decrease in value, those of low quality or in close proximity to office space which is no longer used or at capacity due to work from home trends may go down in value. We expect to see properties of under half a million in value continue to increase. Properties with external space such as gardens and parking will remain popular.