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Bunged up housing market sends total value of London sales back below 2007 levels

London’s housing market has shrunk by a fifth since its last peak in 2016 as fewer homeowners move house.

The total value of all homes sold in the capital has tumbled by more than 20pc since 2016 and is worth 4pc less than it was in 2007, just before the financial crisis, according to the Office for National Statistics.

This is despite a 62pc rise in prices in the past 11 years.

The drop in total value of transactions illustrates the extent to which the market is bunged up, with a sharp drop in the number of sales taking place.

Nationally the number of home purchase mortgages fell to 42,581 in August, a drop of 4.2pc on the year according to industry data from UK Finance. It compares with a peak of more than 70,000 in August 2007.

A lack of supply and low transaction levels mean those sales which do take place are relatively expensive. The average home buyer borrowed  £197,800 last month, up 7pc on August 2017.

There are several reasons why the housing market is slowing down, particularly in the capital. Extra taxes on landlords, tighter lending restrictions and high prices have put off would-buyers in recent years, while last month’s rise in interest rates must also be factored in by buyers.

“Essentially, prices are very high and this has priced out a lot of buyers from the market,” said Hansen Lu at Capital Economics. “Deposit sizes are restrictive, credit is not as free flowing as it was before crisis – not that you would necessarily want it to be – and so transaction levels are down.”

Mr Lu said that while the number of first-time buyers entering the market was nearly close to pre-crisis levels, people who already own homes are the ones who have stopped moving up – or down – the housing ladder.

“That is where there is a reduction in transactions,” he said.

Economist Mike Jakeman at PwC expects the market in most of the UK to grow slowly while London’s prices edge down.

“That is partly because of Brexit-related uncertainty,” he said, calling the London market “stodgy” as a result.

“Bearing in mind buying a house is probably the single largest transaction you will ever make, when you don’t know what the outlook is going to be it just makes sense to sit on your hands for a bit, and of course that clogs it up for buyers and sellers.”

He predicts house prices will keep rising in the rest of the UK with particularly strong growth in Scotland and the Midlands.

Across England and Wales, housing transactions by value have fallen by more than 8pc since 2007. Unlike London, the market as a whole has never recovered to its 2007 level.

At the height of the housing market in late 2006 and early 2007, around 150,000 properties were sold every month nationally.

This plunged to below 60,000 in late 2008, before rising once more to plateau at around 100,000 a month since 2013.

By 2020 London should start recovering too, provided a Brexit deal is reached. Transaction volumes should improve too, Mr Jakeman said.

Source: Yahoo Finance UK