London’s Residential Market Is Slowing – Are There Still Hotspots For Investors?

London’s housing market is slowing in terms of both transaction activity and price growth – indeed, in some central locations prices are either flat of falling.

The number of properties available to buy is insufficient to satisfy demand, which has already been weakened due to worsening affordability despite the recent appearance of mortgage deals offering even lower interest rates. To compound the problem, the number of new home completions fell in the first quarter of the year and many of those that were delivered were beyond the price range of average London households.

This paints a somewhat depressing picture for investors.

However, London is a large city and aggregated data masks the fact that there are considerable variations between submarkets in terms of price and performance.

Moreover, flat or falling prices present an opportunity to buy before the market upturns, which history suggests it will, given the imbalance between supply and demand. The trick here is calling the bottom of the cycle.

So, where are the best places to buy in the capital at the moment?

What you ideally want is a combination of low prices (relatively speaking within the context of average London property values) and good growth potential.

Generally speaking, the further away from central London you move, the less expensive property becomes and yields are also higher.

Large-scale regeneration and major infrastructure projects, notably Crossrail, will generate property demand and price growth going forward. However, beware ultra large developments in the early phases as oversupply and inappropriate pricing can damage shorter term investments, with Nine Elms being a prime example.

It is important also to research the local area where you intend to buy with regard to the lettings market: how strong is tenant demand? What are average rental values?

What is the level of competition – i.e. how many properties are on the market to rent?

With affordability increasingly an issue in the private rented sector, tenants are gravitating towards the cheaper locations which, as in the sales market, are to be found further away from central London.

As to specific hotspots, basic analysis identifies 14 boroughs where prices are below the London average and growth is above average, and one borough where prices are below average and falling.

My current top picks are towards the south east and east in Croydon, Greenwich and at Canary Wharf and further eastwards north of the river along the CrossRail route.

  Average price

(Mar 2017)

12m price growth

(Mar 2017)

London £471,742 1.50%
Tower Hamlets £444,397 -5.3%
Bromley £433,008 3.4%
Waltham Forest £432,759 5.3%
Hillingdon £415,716 5.5%
Lewisham £414,721 3.7%
Hounslow £406,976 6.5%
Redbridge £406,522 4.7%
Enfield £393,414 5.7%
Sutton £371,383 4.9%
Greenwich £368,451 2.2%
Croydon £367,160 7.3%
Havering £362,983 9.6%
Newham £353,300 5.1%
Bexley £334,053 6.3%
Barking & Dagenham £277,508 4.2%

Source: Land Registry

Nick Barnes is Head of Research at Chestertons, one of the UK’s leading property businesses.

Contact Nick on Twitter

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