London Property Prices 2023: Mortgage Rates and Investment Insights

The world of London property prices can often feel like navigating a complex labyrinth. From fluctuating averages to the effects of interest rate and mortgage rate rises, it's essential for both buyers and sellers to stay informed about the ever-evolving property market in the UK's capital.

The State of London Property Prices:

Over the past year, properties in London have maintained an average price of £701,639. To delve deeper into specific property types, flats have been the most common choice for buyers, with an average price of £541,589. Terraced properties are fetching an average of £772,837, while semi-detached properties are not far behind at £763,583. Interestingly, the overall sold prices in London have remained similar to the previous year, witnessing a 9% increase since the 2020 peak of £643,621.

The Impact of Mortgage and Interest Rate Rises:

Recent headlines have highlighted a series of interest rate and mortgage rate rises. The Bank of England, in response to persistent inflation, has raised the Base Rate 13 times since December 2021, reaching its highest level in 15 years at 5.25%. This freeze issued by the Bank of England (BoE) is after 14 consecutive raises. This has also cooled down the rate of inflation and slightly improved affordability.

However, the continuous affordability challenges (since Lizz Truss’ mini budget in 2022) for home-buyers have led to adjustments in asking price expectations. Consequently, the average asking price for a home in Great Britain has decreased by 0.2% this month, amounting to £371,907. Despite this dip, house prices have proven more resilient than anticipated, with a 2.6% increase since January, driven by continued demand from home-buyers.

New Home-Sellers Adjust Their Strategies:

In spite of these factors, motivated buyers who can accommodate these rate increases continue to inquire about properties. With many first time buyers, trade  uppers and downsizers searching the market with intent to buy as they have higher deposits, cash or lower mortgage requirements.

Realistically priced homes, given the current shortage of listings compared to historical averages, still attract eager buyers. It's crucial for sellers to price their properties correctly from the outset to increase their chances of finding a buyer in a competitive market, as properties that are priced incorrectly are 10% less likely to receive an offer.

According to RightMove “House prices have proved more resilient than most expected during the first half of the year, and are now 2.6% higher than in January. Demand from home-buyers is still higher than 2019’s more normal market level”

Current UK Mortgage Rates:

According to Better.co.uk The average rate for a five-year fixed, 85% Loan-To-Value mortgage now stands at 5.43%. The average rate for a three-year fixed stands at 5.88%.

The standard variable rate (SVR) is 7.74% which is a stark increase from last year’s 4.78% in July. While rates have risen in response to the Base Rate hikes, the financial markets anticipate a long-term reduction.

Moreover, things are looking up since 2022 when Lizz Truss introduced a mini-budget. The mortgage deals plummeted to 2,560. There are 5,338 mortgage deals for residential lending according to Moneyfacts.

When Could Mortgage Rates Start to Drop?

Financial markets predict that the Base Rate may have reached its peak and anticipate a period of stability in early 2024. Mortgage rates are expected to follow suit, gradually decreasing. However, the exact timing of substantial rate drops remains uncertain, contingent on factors such as falling inflation and economic stability.

Average Monthly Mortgage Repayments:

Considering current average house prices, the monthly mortgage payment for a first-time buyer with a five-year fixed, 85% Loan-To-Value mortgage, amortized over 25 years, is approximately £1,187.

How Much Can You Borrow with a Mortgage?

The amount you can borrow with a mortgage depends on affordability assessments and your deposit size, expressed as Loan-To-Value (LTV). LTV reflects the mortgage amount relative to the property's value. Higher deposits result in lower LTV ratios. Online tools like mortgage calculators and Mortgage in Principle applications can help you determine your borrowing capacity.

Changing Asking Prices and Market Activity:

Average new seller asking prices have increased slightly by 0.4% to £366,281, lower than the typical September rise. The annual price change has declined to -0.4%, a trend driven by a subdued housing market due to interest rate rises and summer holiday distractions. This has led to price reductions, with 36.3% of properties for sale experiencing a price cut averaging £22,700.

Market Activity and Prospects:

August saw fewer new sellers, down by 6% compared to the ten-year average, while buyer inquiries remained stable. However, sales agreed dropped by 18% in August compared to 2019, primarily due to economic conditions and a lack of fresh listings. Notably, the first-time buyer sector has outperformed larger home sectors since February. There has been increase in house bought by foreign investors primarily for lettings, as rental yields have seen an increase in the UK housing market.

New Built Investment on the Market:

Our agents have observed a subdued market in recent summers, partly due to travel restrictions and the prevailing economic conditions. However, as September progresses,there has been an upturn in market activity, notably in the new homes sector. Investors and those looking to live in and around London, are finding best value and appreciation in principle investments made in newly built homes. 

Fraser & Co.’s suggestion for interested investors is Vabel Lawrence for this quarter. Tucked in a quiet neighbourhood on a quiet street in Seven Sisters, this development hosts a collection of thoughtfully created apartments with handpicked details and furnishings that hark the industrial origins of Lawrence Road. Every apartment boasts of fine appliances, finishes and has its own character. Vabel has combined the charm of a warehouse conversion with all the modern comforts of a new build. The development exudes warmth with layered textures, warmer tones, mood lighting and cascading organic topography set against the modern industrial design.

House prices start from £450,000 and services charge from £3 per square foot. There are 59 private homes in the development. There are excellent transport links, enticing eateries and charming coffee shops and bars.

Contact our teams at newhome@fraser.uk.com or contact us at 020 7723 5645