Political uncertainty and rising mortgage rates are reshaping buyer and seller behaviour across the capital
London's housing market has taken the heaviest hit from a nationwide slowdown in sales, with political uncertainty and rising mortgage rates reshaping buyer and seller behaviour across the capital.
Simon Gerrard, chairman of Martyn Gerrard Estate Agents, told Mortgage Introducer the shift was already visible in demand and pricing across London.
His comments followed the findings of Zoopla's latest house price index report. The report found three in five homes listed for sale since January remain unsold, with sales agreed down 7% year-on-year across the UK and buyer demand down 15%.
Why has London borne the brunt of the slowdown?
Gerrard said the headline figures understated the pressure being felt locally. "It is reassuring to see more realistic signals emerging that reflect what many of us on the ground have observed for some time: the market is under considerable strain. Headline figures often mask what is truly happening at the regional level, and London in particular has borne the brunt of a pronounced slowdown."
He said his own agency had recorded a 33% drop in valuations in a single week, alongside a roughly 20% softening in demand across London, which he attributed to prolonged political uncertainty, tensions in the Middle East, and upward pressure on interest rates.
Zoopla's data supports the regional picture. London recorded a 9% fall in sales agreed and a 12% drop in buyer demand over the four weeks to 21 June, while the West Midlands and North East saw the steepest annual falls in demand, at 30% and 29% respectively.
What is driving the pullback in demand?
Gerrard was critical of the tone being set at Westminster. "It seems the new Prime Minister in waiting is following Labour's footsteps of a Hansel and Gretel approach to policy, leaving a trail of broken breadcrumbs to test the waters first. In a market where confidence is the single most important driver, even the suggestion of more interventionist measures risks further dampening sentiment and stalling growth."
He argued policy needed to account for regional disparities in the cost of living, warning measures designed to cool house price growth would hit London disproportionately hard during the cost-of-living squeeze. "For many mortgaged homeowners, the focus is shifting to rising monthly payments and the risk of eroding equity, rather than aspirations to move up the ladder."
Zoopla's own analysis points to a similar dynamic. The average mortgage rate of 5% recorded in April added around £244 a month to repayments for London buyers, compared with roughly £69 a month for buyers in the North East. Rates have since eased to 4.8% in May, in line with the Bank of England's decision to hold its base rate at 3.75% in June, though Zoopla says further falls will be needed to meaningfully improve affordability.
What is keeping the market moving?
Gerrard said so-called needs-driven transactions were providing a floor under activity. "Overall, we are finding the 'three Ds' are keeping a baseline of activity going: death, divorce, and debt. These are needs-driven transactions, where motivated sellers meet opportunistic buyers." He added that unique or high-quality properties, such as mews houses and church conversions, remained resilient regardless of wider conditions, but that success depended on precise alignment with buyer expectations.
Gerrard also cautioned against reading too much into official transaction data given growing delays in the legal process, and pointed to political instability – seven prime ministers in a decade – as a longer-term drag on confidence. Data from first-time buyers taking longer to get on the ladder reinforces the pressure building at the entry level of the market, where Zoopla says more than two-thirds of flats listed this year are yet to sell.
The wider price picture underlines the same regional divide Gerrard described. Zoopla recorded annual house price growth slowing to 1.4% nationally, with London posting negative annual growth for the ninth consecutive month, at -0.2% in May, and the South East close behind at -0.3%.
By contrast, the North East and North West each recorded growth of 3.5%, and Scotland 3%, aided by tighter supply. Wales saw the steepest annual fall in sales agreed at 12%, followed by the East Midlands at 11%, suggesting the slowdown Gerrard describes in London has counterparts across several regions, even where the underlying drivers differ.
Why is it crucial rates hold steady?
Gerrard said lenders and brokers had a role to play in supporting confidence at a fragile moment for the market, referencing the wider context of high mortgage rates keeping buyers on the sidelines.
"There has rarely been a more important moment to hold rates steady," he said. "This is a critical period for lenders to remain competitive, supporting liquidity and ensuring the housing market continues to function as serious fault lines begin to emerge. Bankers and brokers must recognise the market's vulnerability and the far-reaching consequences if it falters, from rising consumer debt pressures to a slowdown in construction and investment. Ultimately, protecting consumers and restoring confidence must be the priority, as both are essential to underpin broader economic resilience."
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