The londonpropertyguy’s view: A couple of reasons: uncertainty being one of them due to Brexit so people just don’t want to move house and incur the cost of doing so. But more worrying is that this may be linked to a slowdown in wage growth.
Why do wages slow down?
Usually because of a rise in unemployment. This comes from a faltering economy. When there is high unemployment, to get a job, people are prepared to accept lower pay. Equally, if you have a job, you are grateful for it and unlikely to push for a raise when the company could easily replace you with someone willing to accept lower pay.
With less money washing around, there is less money chasing the existing housing stock so prices have to adjust downwards to match purchasers’ ability to pay.
Another thing is supply. Take a look around North Greenwich and also Vauxhall. A huge amount of property is about to come on stream. Sadly, it looks like many developers started projects some years ago, anticipating business as usual (i.e. no Brexit) and now the rug has been pulled from under them. My sense is that many of them are less concerned about making a profit and more concerned about not going under. I expect large drops in asking prices just to get them sold so they can lick their wounds and head for greener pastures.
Another point is rent levels. Many of these new developments (particularly in North Greenwich) are bought as investment properties. For an investment property to make commercial sense, you have to be able to cover your bond with the rental payments from your tenant. The lower the rent you can achieve, the more of the bond you have to pay out of your own pocket. In a high growth environment, this is ok because the capital growth you get each year dwarfs the top up amounts you have to pay and you can refinance in due course releasing that equity for yourself. In the current environment, it is not ok because prices are going down, not up. To make matters worse, rents are also coming down and coupled with the second home stamp duty increase (something that was implemented assuming no Brexit) and suddenly it does not make much sense to be a landlord.
As a result, a lot of would-be investors will be dumping their investment properties which again means additional supply and this will cause prices to drop even more.
Now that France has voted firmly to remain in the EU, Britain stands alone in its negotiations with the EU. With negotiations already not looking good, look for further falls in Stirling, higher inflation, higher unemployment, lower wages… With interest rates already as low as they can realistically go, the Bank of England’s hands are tied.
Difficult times ahead.