End of London's great escape as property market slows

Fewer house-movers opting to leave UK capital, but figures remain above pre-pandemic levels

This year, 62 per cent of the London-based buy-to-let cohort bought outside the capital. EPA
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The number of Londoners looking to move outside the capital city has fallen over the past year, according to a new study.

Research by the UK estate agent group Hamptons shows Londoners will have purchased 81,200 properties outside the capital this year, nearly 20,000 fewer than last year.

In 2022, Londoners bought 7.3 per cent of all homes sold in regions outside the capital, down from a 14-year high of 7.8 per cent last year. Nonetheless, the 2022 figure is still higher than in 2019, when 6.8 per cent of homes outside of London were bought by Londoners.

During the Covid-19 pandemic, many Londoners worked from home, which sparked some to move outside the capital. The logic was, if I can do my job remotely, why not move out of my high-priced London home into somewhere cheaper — and often larger — and pocket the difference?

While the figures from Hamptons show that this is still going on, the trend seems to have peaked.

Aneisha Beveridge, head of research at Hamptons, said: “London outmigration appears to have passed its peak. While 2021 was dominated by space seekers swapping the bright city lights for pastures green, 2022 signalled the return to the office. That said, the widespread popularity of flexible working has meant that Londoners continue to move that little bit further out of the city to gain more space, meaning outmigration numbers remain higher than pre-Covid times."

Affordability key for first-time buyers

Even though the peak seem to have been passed, Hamptons contends that what is driving some, especially first-time buyers, out of London is affordability. With rising interest rates and high inflation, first-time buyers based in London are increasingly looking further afield. Affordability meant that first-time buyers made up a record 28 per cent of those purchasing outside London.

Also, Londoners who made a permanent move out of the capital bought 62,210 homes this year, a fall of 23 per cent on last year, but still 8 per cent higher than in 2019.

“Next year, we expect the pace of London outmigration to cool further as pent-up demand from the Covid related trend wanes," Ms Beveridge said. "But affordability pressures, and in particular the cost of higher interest rates, may mean that more Londoners are forced to move further afield to buy a home. Our latest data suggests that first-time buyers in particular are sacrificing location in order to climb on to the housing ladder. And this looks set to put a floor under London outmigration numbers in 2023.”

Running out of steam

The property website, Zoopla, also sees the search for space in the UK's rural and coastal areas as finally "running out of steam".

"The pandemic saw people moving from urban areas in a ‘search for space’, afforded by the onset of more flexible hybrid working and a big increase in retirement by older workers," said Zoopla's latest House Price Index. "Many buyers relocated to rural and coastal areas across the UK, pushing up house prices in the South-west, Wales, Kent and Norfolk,"

For Richard Donnell, executive director at Zoopla, the increase in the number of Londoners that moved out of the capital during the pandemic was really just a blip and now the market is returning to normal.

"London's housing market has got bigger as a result of the pandemic, in that people can now work in London two or three days a week, but actually live further afield," he told The National. "So, it eases some of the pressure on the old London housing market, which went out to the M25 [London orbital motorway]. That means that prices won't go up, even if people came back, because they wouldn't have to come back in the middle of London."

Figures from Zoopla show the pent-up demand that was prevalent during the pandemic is now fading, with many coastal and rural towns this year recording a greater slowdown in demand and sales than other areas nationally.

But this doesn't point to a mad rush back into city-centre living. What's happening is a spread of the urban housing markets, which means that the gradient between house prices in inner cities and the suburbs and further out is flattening, as the daily commute becomes increasingly less desirable and more sidelined in the face of changing working patterns.

"You've loosened the ties between where you work and where you live," Mr Donnell told The National. "So, every housing market in the UK has got that bit bigger and that eases the pressure on the core urban area, in that people can live further afield, Zoom calls are acceptable and you don't need to be in the office five days a week. Also, employers are having to be a lot more flexible towards employees in what's a tight labour market."

Data from the estate agents Knight Frank shows that between the July and September of 2020 and the same three months this year, completed house sales rose by 10 per in the UK's cities, but fell by 8 per cent in the rural areas.

“After a frenetic period for the country market, city living has come back strongly as workers have returned to the office, and the lifting of pandemic restrictions have boosted the appeal of urban living," said Chris Druce, senior research analyst at Knight Frank.

Buy to let

Property investing has seen some shifting patterns. A decade ago, only 26 per cent of London-based buy-to-let house buyers were purchasing outside the capital. This year, nearly two thirds (62 per cent) did so. One reason is that property investors have for a few years been chasing better yields outside London, as property costs in the capital soared. Together with buyers of second homes, London-based buy-to-let investors spent a total of £4.89 billion ($5.93 billion) on property outside the capital this year.

Across Britain, the average price of a newly marketed home in November was £366,999, according to property website Rightmove. PA

Looking northwards

Geographically, the picture is changing as well. Amid rising house prices, Londoners moving to pastures new have had to set their sights further afield than in previous years, to get the space they desire.

The average Londoner buying outside the capital now purchases 34 miles away, 1.2 miles further than last year.

Those involved in buy-to-let purchases look even further away, at an average of nearly 110 miles, a figure which has doubled since 2013.

In terms of a regional breakdown, the numbers from Hamptons point to the fact that the share of Londoners moving permanently to the Midlands or the North of England rose from 6 per cent in 2012 to 15 per cent this year. Meanwhile, more than half of London-based investors bought a buy-to-let property in the Midlands or the North, up from 20 per cent a decade ago.

File photo dated 10/07/22 of a view of the London Skyline

London house price growth will show strength ... eventually

The conditions that enabled Londoners to go on a 'quest for space' in house-hunting outside the capital during the pandemic are largely non-existent now. The stamp duty holidays of a couple of years ago are largely back in force, except for first-time buyers. Mortgage rates are considerably higher than they were and there is a growing opinion among employers that they'd like to see their workers back in the office for two days a week at least. Plus, the UK economy is likely heading for a recession next year, with the Bank of England suggesting it is already in one.

All of which would serve to dampen down demand in the London housing market over the next year, but 2024 could see some recovery.

"London has underperformed in terms of house prices, because it was overvalued back in 2015," Mr Donnell said. "But it's had a succession of challenges, so for a dollar-backed buyer looking at central London, it's the cheapest for a decade. But I don't think it's enough yet to bring the money in, because we've still go the uncertainty over the Brexit dividend and so on.

"So, I think London's probably got a year of prices going down before [the market] begins to look like a buy, and it looks like a place where the relative pricing of London internationally and within the UK will start to attract buyers back into it."

Updated: December 26, 2022, 12:01 AM