London house prices drive up national average

A supply and demand imbalance helped London’s housing market outperform the rest of the country during May, a study has shown.

Prices in the capital went up by 0.6 per cent in London during this month, according to Hometrack, contributing a substantial amount to the 0.2 per cent increase seen across the country as a whole.

Demand has risen ahead of supply in London over the last three months, bucking the national trend which has held prices back, the survey said.

The high demand for properties in London will no doubt have contributed to the capital’s fast-moving property market, which sees the average home sell in just 5.1 weeks, compared to the national average of 9.3 weeks.

The price of central London properties has been driven up in recent months due to the eurozone crisis. Wealthy individuals on the continent have seen the capital’s properties as a safe haven for their money.

But it was the largely domestic markets of south west (1.1 per cent), south east (0.7 per cent) and north London (0.5 per cent) which experienced the greatest price rises in May. Central London property prices went up by 0.1 per cent.

Hometrack director of research Richard Donnell said: “You can’t read too much into one month, but with central London it could be the problems in the eurozone.

“Prices in central London have gone up quite a lot, quite strongly in recent years so perhaps it is a sign that it is starting to lose momentum.”

Donnell explained that the capital’s property market consists of a number of layers. Some buyers regard the area as a safe haven, while high-net worth individuals simply desire a London property, he said. Lower down the market are those who work in London and tend to have mortgages.

“But ultimately with London, on pure supply and demand it is clear not enough homes are being built to meet demand. The new homes which are being built are bought by investors rather than occupiers.”

London’s properties also achieved a higher percentage of their asking price than any other area of England and Wales. Properties in the capital fetched 94.6 per cent of their asking price on average, compared to the national average of 93.2 per cent.

But Donnell was unsure about how long London could continue to perform better than the rest of the country.

He said: “How much can London keep pulling ahead of the rest of the country? That’s where the big question mark remains.”