Analysis by ONS highlighted elements which had seen notable differences compared to the rest of the country and also found differences at a more local level between London boroughs.
It found that the current downturn was reversing the trend seen between 2012 and late-2016 where London prices significantly outgrew the rest of the UK – with peaks in 2014 and 2016.
The London rental market has also been hit with rents falling since May, the first time since September 2010.
Property types were one of the main points of analysis and although all types have followed a broadly similar downward trend in annual growth over recent years, only two have seen negative growth in the last few months – flats and detached houses.
The ONS noted that flats make up a relatively high proportion of property transactions in London – around 55% in 2017 – so it suggested the fall in prices for flats, rather than detached properties, is likely to be driving the recent downturn.
Buy to let
The buy-to-let market changes and the impact of the increase in stamp duty introduced in 2016 may have had a disproportionate effect on the capital, not only reducing transaction volumes but also forcing landlords out to the rest of the country.
The ONS added that London seemed to have been more affected than the rest of the country by the dip in sales volumes in the second quarter of 2016 after the changes.
“This may be because London historically has a relatively large proportion of additional properties that are now subject to a higher rate of Stamp Duty,” it said.
“It may also reflect other factors such as uncertainty following the Brexit referendum result and local factors given the variation by borough.”
Help to Buy
Help to Buy and the new build market may also have had a significant impact on the London market.
Sales volumes for existing properties fell by more than those for new-builds from mid-2016 in the capital as well, however average prices for new-builds have grown more quickly in recent months. “This may partly reflect the influence of the Help to Buy scheme that makes it easier for people to purchase a new-build property under £600,000,” the ONS said.
“Boroughs with average prices below £600,000 are more likely to be in outer London than inner London, which may account for some of the difference in house price growth between inner and outer London.”
When analysing movements within London’s market, patterns also emerged based on differences within the capital’s 32 boroughs.
It spotted that changes often occurred in Central London first and that areas could be insulated or more vulnerable depending on their housing stock and population.
Overall the ONS was uncertain whether the falls in London would eventually be replicated across the country.
“Recent negative house price growth has primarily been concentrated in inner London but the most recent data suggest it may now also be radiating outwards,” it said.
“This may reflect trends seen previously where changes start in inner London before moving outwards to the rest of the capital and the rest of the country.
“On the other hand, in the context of previous sustained high price growth, the recent downward trends within London may reflect factors that are less relevant to the rest of the country,” it concluded.
Investec Private Bank said it continued to remain cautiously optimistic for the prime central property market in the London.
Business development manager Peter Izard noted that London was still one of the key centres of the financial world with a high undersupply of property throughout.
“The price adjustments that have occurred over the last two years, uncertainty around Brexit, the tax changes and the consequences these have brought, have largely been priced into the market,” he said.
“Therefore, these are supporting factors for the London property market and the prime areas to move forward on and we remain relatively optimistic that they will remain stable.”