Our latest research looks at how foreign investment into London new builds for second homes and buy to lets could be pushing the average new build house price way out of reach for the first-time London buyer.
Using the latest data from the Land Registry, we looked at the gap between the average first time buyer house price in London and the average for a London new build since 2012 and found that, not only has there been a consistently increasing deficit of 11%-13% between 2012 and 2016, but so far this year, that gap has already escalated to over 18%.
Despite recent changes in stamp duty for buy to let and second homes and Britain’s decision to leave the EU, a report by York University for the London Mayor, Sadiq Khan, has found that thousands of new build homes, suitable for first-time buyers, are being snapped up by foreign investors.
Boroughs with the Highest Level of Foreign Investment
- Westminster 11%
- Tower Hamlets 9.6%
- Greenwich 9%
- Wandsworth 8.6%
- Kensington and Chelsea 8.4%
- Southwark 8.4%
- Hackney 7.4%
- Lewisham 6.2%
- Hammersmith and Fulham 4.2%
- Newham 3.7%
The boroughs with the highest percentage of foreign buyers were found to be Westminster, Tower Hamlets and Greenwich, with between 9% and 11% of all London homes sold overseas. Kensington and Chelsea (8.4%), Southwark (8.4%), Hackney (7.4%), Lewisham (6.2%), Hammersmith and Fulham (4.2%) and Newham (3.7%), also ranked in the top 10. Over 50% of London properties sold abroad were also below the £500,000 mark.
In 2012, the average London first-time buyer paid £264,682, however, the price of the average London new build was already over £30,000 more than this affordability threshold at £297,587 – a difference of 11.06%.
As London’s market continued to over inflate this gap grew marginally, but consistently larger stretching to 11.89% in 2013, 12.34% on 2014, 12.59% in 2015 and 12.98% in 2016. However, this recent influx of foreign interest may well have widened the gap beyond reach, as so far in 2017 the difference between the affordability of a London first time buyer and the capital’s new build properties is now 18.21%.
Biggest Current Deficit
Newham is by far the worst offender in terms of the gap between the boroughs average first-time buyer house price and the price of a new build. Since 2012, the gap has exceeded 22% (22.5%), again growing steadily at 22.76% in 2013, 22.72% in 2014, 22.81% in 2015 and 23.26% in 2016 before accelerating to 27.91% in 2017 alone.
Gap Between Average First Time Buyer & New Build House Price
Westminster is home to the second largest gap, currently 16.87% having sat between 10.79% and 12.43% since 2012. Greenwich has the third largest gap at 16.18% having yo-yo-ed between 10.77% and 11.82% since 2012.
Southwark (15.37%), Wandsworth (14.72%), Lewisham (13.60%) and Hackney (12.11%) also have a current gap of over 10%. Hammersmith and Fulham (7.39%), Tower Hamlets (7.33%) and Kensington and Chelsea (1.82%) are home to the smallest difference.
Although currently home to some of the smallest differences, prime central London has seen the biggest turn around in the FTB to new build price gap in the last five years.
Kensington and Chelsea and its high cost of property mean that the first-time buyer house price in the borough has actually been higher than that of the average new build, over 6% higher in 2012. But this gap has slowly closed and finally reversed in 2017 with new build prices exceeding first-time buyer prices by 1.82% – the largest turnaround of all boroughs.
In 2012, the average first-time buyer house price in Hammersmith and Fulham was also marginally higher than the average new build (0.33%) but has since been outstripped by a consistent increase in new build house prices, the second largest turnaround of all boroughs.
Lewisham has also seen one of the largest gap increases in the last five years with a 129% change and fourth largest in the last year, up 66%. Tower Hamlets ranks third behind the prime central London boroughs with the gap widening by 134% since 2016 alone.
Worrying signs for London’s first-time buyers and signs that aren’t just restricted to London’s high-end market, with Tower Hamlet’s seeing some heavy levels of overseas investment as one of the capital’s more affordable boroughs.
It’s clear that new build affordability has been an issue for first-time buyers over the last five years, but this gap seems to have exploded over 2017 alone. Yes, foreign investment brings with it many benefits, including a trickle-down effect of funding for other housing initiatives at lower levels and in fact, the nationality of a buyer is not the issue.
The issue is a buyer utilising a property as a second home or a buy to let in an already cut throat rental market, while aspirational buyers remain in the doldrums of said rental market prohibited from making that first step onto the ladder as a result.Russell Quirk