The gap between those young Londoners who can afford to buy and those who cannot is widening as the capital’s affordability crisis continues, made even more critical by the rising cost of living.
The proportion of people dependent on mom and dad’s (and grandparents’) banks has grown during the pandemic as average house prices in the capital continued to rise despite the economic uncertainty brought on by Covid-19.
According to new forecasts from Savills, the number of purchases with family money is expected to continue to grow.
In 2021, the percentage of home sales for the first buyer with family assistance rose to a record seven-year rate of 46 percent with an average contribution of £56.15, up from 43 percent in 2020 and 39 percent in 2019. Savills predicts that this will be next year rising again to 47 percent in 2023.
“There’s a bit of a pandemic response here as parents and grandparents are thinking ‘what’s the point in sitting on this money’. Perhaps some have moved back in with their parents during the lockdowns and that has motivated the parents to buy for themselves,” explains Lawrence Bowles, an analyst at Savills.
For some, the pandemic meant they could move back home, stop paying rent and save for that security deposit, if their parents have a place large enough to house them in their home counties and within reach of work. he continues.
“This is certainly not a uniform picture across the capital and as a result, the gap between the haves and have-nots, those who can get on the ladder or not follow the pandemic, is widening,” Bowles said.
High cost of living and houses means prices will fall
The growing number and magnitude of parent contributions reflects the amount of equity that the baby boom generation in the UK owns due to the extraordinary appreciation of their property and the high cost of housing in the capital.
Buoyed by the Chancellor’s emergency shutdown granted in July 2020 and a lack of supply, house prices in London continued to rise amid the pandemic – despite widespread exodus into the countryside.
Property values in London rose £20,668 or 4.2 percent (according to recent Nationwide figures) last year, bringing the average cost of a home in the capital to £507,230.
Savills predicts that prices will rise again by 3.5 percent this year, making the dream of owning a home out of reach for many. “First-time buyers are as stretched as they can be,” Bowles says.
As a result of high house prices and rising cost of living, Savills has revised its home price forecasts downwards, with the average value in London falling 1% next year and then gradually growing 0.5% in 2024, 1.5% in 2025 and another one per cent in 2026. That’s a total of five percent over the next five years for the mainstream London property market.
“Unless we see mortgage rules repealed or relaxed, there will be a cap on home price growth due to continued pressure on affordability,” Bowles said.
UK housing market cools down
The overall UK property market is showing signs of slowing down after a massive surge in house prices across the regions, eventually succumbing to the same affordability pressures.
Although Nationwide recently reported the 10th consecutive month of home price growth of 11.2 percent over the 12 months to May, the pace of annual growth has slowed slightly. The average house price in the UK is now £269,914 according to the lender.
“We continue to expect the housing market to slow down during the year. Household finances are likely to remain under pressure and inflation will reach double digits in the coming months if global energy prices remain high,” said Robert Gardner , chief economist at Nationwide .
“Consumer confidence measures have already fallen to record lows,” he continues. “In addition, the Bank of England is widely expected to raise interest rates further, which will have a cooling effect on the market if it feeds through to mortgage rates.”
Energy bills and global conflicts hit borrowing
A decline in the number of people borrowing to buy a home is also an early indicator that the hot pandemic real estate market will cool down.
Just last week, the Bank of England reported net mortgage lending had fallen to £4.1 billion in April, from £6.4 billion in March. Mortgage approvals for home purchases also fell from 69,500 in March to 66,000 in April. Both measures are now below their pre-pandemic 12-month average to February 2020.
“Buyer activity is slowing as the cost of living shrinks the pool of buyers. Rates on certain products have doubled in the past 12 months and there is a real sense of urgency among many borrowers who feel they need to act quickly or renew have to assess what they want. can afford,” explains Hina Bhudia of Knight Frank Finance.
Luxury London to bounce back
The luxury of the core of London (also known as the main center of London) is expected to buck this national trend as global instability and the return of international travel drive the overdue recovery.
“It’s hard to predict home price growth with so much going on and so much noise — from rising interest rates, inflation to the cost of living,” said Marcus Dixon, chief of residential research at JLL. “Other factors also come into play. Any global uncertainty – such as the conflict in Ukraine – could lead international investors, like London, to resort to bricks and mortar in the world’s perceived safe havens,” he explains.
There is also pent-up demand from places like China and Hong Kong, where there have been recent lockdowns and travel restrictions still in place, Dixon continues. “These buyers have yet to come back.”
Louis Harding, who runs the London business for Strutt & Parker, agrees. “Buyers in central London will be less affected by rising inflation and a rise in the cost of borrowing. Central London will also benefit disproportionately from the return of international travel which has yet to be fully realized.”
The pound is weak against the dollar and as property prices have fallen over the course of the pandemic, things are looking ‘good’ for the international high-net-worth buyer, he continues.
Savills forecasts an eight percent increase in PCL value this year and 23.9 percent overall growth over the next five years.