London sales & rental review Q1 2022

London’s mainstream sales market saw further price growth in Q1, but at a slower rate than the rest of the country.

Rents in the capital continued to increase very strongly, ahead to the national average rate. In prime central areas price growth in the sales markets was more muted after a strong 2021 but rents increased significantly again.

Greater London overview

House price growth in London accelerated in Q1, reaching 8.1% in February according to the latest February ONS index. This is still a little behind the rest of the country at 11.1%, results which are mirrored in the Nationwide regional indices for Q1: 7.4% growth in London and 12.6% nationally.

Sales activity in London continued to recover slightly compared to the rest of the country. London rental growth remains low according to the ONS index, lagging the national level figures, but rents in the capital appear to have recovered strongly based on other timelier rental market measures (shown below). Figure 1 shows the relative performance over time of London against the rest of England in terms of house prices, sales transactions, and rents.

Figure 1 – London vs. rest of England: values and transactions

Source: ONS, Land Registry. *Positive = London performing better than rest of England

Homelet’s March index, based on newly agreed lets, again recorded very strong rental growth in London. Annual growth reached 11.6%, compared to a UK excluding London figure of 6.6%. London also recorded higher growth compared to the national average in Rightmove’s Q1 index (14.3% vs. 10.8%), with both figures reaching very high rates.

Table 1 – Greater London rental data

		Average rent pcm	Annual change
Homelet, Mar-22	UK ex. London	£893	+6.6%
	London	£1,770	+11.6%
Rightmove, Q1 22	UK ex. London	£1,088	+10.8%
	London	£2,193	+14.3%

Source: Homelet Index (actual achieved rents), Rightmove Rental Trends Tracker (asking rents)

Market sentiment

Sentiment in the capital remained positive in Q1, with the March RICS survey (results shown in Figure 2) reporting expectations for growth in prices and activity both in the short and longer-term. Three-month expectations for prices had a net balance of +38 in March, while the 12-month measure was +69. Sales volumes are also set to continue increasing, with the short and long-term figures at +48 and +55 respectively.

Figure 2 – RICS Survey Sales and Price Expectations, London

Source: RICS Housing Market Survey (Mar 2022)

The dynamic of supply well ahead of demand in the London rental market also continued in Q1. The net balance for tenant demand increased to +60 in March, although new instructions did edge into positive territory at +5. Rent expectations hit another record high of +80.

Figure 3 – RICS Survey Rental Indicators, London

Source: RICS Housing Market Survey (Mar 2022)

Prime Central London

Sales values were unchanged in Q1 with a slight increase in rents, according to the Cluttons Prime Central London Index, the recent results of which are shown in Figure 4. On an annual basis sales values are broadly unchanged at 0.2% higher than Q1 2021. Rents have been relatively stable for three quarters but are up 17.2% compared to a year earlier.

Figure 4 – Cluttons Prime Central London Index

Source: Cluttons

Other indicators also suggest price growth has slowed in PCL. Transactional evidence from LonRes recorded annual growth of 4% in Q1, compared to almost 9% last quarter. Activity increased slightly with a 5.5% rise in Q1 on an annual basis. Average discounts grew to 7.9% (compared to 3.8% in Q4) and 14% of properties sold within three months of coming to market, a slowdown relative to Q4’s 21%.

By contrast LonRes reported rental values continuing to grow, with a 4.7% quarterly increase, taking annual growth to 29.2%. This is very much driven by limited stock, with 37% fewer properties let compared to Q1 last year and 60% fewer available to rent.