Homeowners are taking a more cautious approach to investing in the UK’s property market as demand from overseas surges, with analysts warning that the market is on the brink of a real estate meltdown.
The average price of a detached home in the capital fell 4.5 per cent in the past month to £1.8m, according to the data released by the Office for National Statistics on Monday.
The UK’s market has struggled to respond to the sharp drop in demand in recent months, with home prices rising just 1.5% year-on-year to £3.3m in the month ending May, according the ONS.
The median sale price of homes in the London borough of Camden fell 4 per cent last month, to £800,000, while the average sale price for properties in Kensington and Chelsea fell by 4.2 per cent to £937,000.
The Office for Budget Responsibility said the fall in demand has led to “a fall in the average price for homes in London”, with the average selling price of properties in the borough dropping by 9.3 per cent.
“We’ve been in a long, slow recovery in the value of the UK property market,” said David Horsfall, chief executive of Horsdale Property.
“That recovery has been a big hit on the economy and housing.”
He added that the UK is now a much more affordable place to live than it was before the Brexit vote in June.
“The UK has been very successful at reducing the gap between rich and poor, so there’s a lot of optimism about housing being affordable again,” he said.
The slowdown in the housing market is likely to slow growth in the economy, with many economists predicting that the Government will have to spend £100bn a year to prop up the economy until 2020.
Horsdale expects the UK to continue to lose population, adding: “The demographic pressures that have driven the economy to its current slow, slow decline, are likely to persist until we have a robust recovery.”
Meanwhile, the Bank of England has warned that a further downturn in the property market could trigger a wave of job cuts in the coming months.
The Bank of Ireland has already warned that Britain’s property sector will be the biggest driver of job losses in the next three to five years, as more people seek to sell their properties and prices slump further.
The Government has responded to the fall of demand for homes with a plan to introduce an additional £1,000 stamp duty on homes worth more than £2m.
The move is designed to discourage investors from buying property that could be sold at a loss.