Land register data showed the average cost of a house in the capital jumped 8.1% in February to a new record high of £529,882. Prices have not risen faster since August 2016.
This means prices in London have risen by an average of more than £55,000 since the start of the pandemic two years ago.
The increase in February alone was 2.24 per cent, adding £11,600 to a property’s value but making it increasingly difficult for young buyers to move up or up the property ladder.
London’s buoyant property market is still lagging the national price rise of 10.9%, but is catching up fast, fueled by a chronic shortage of properties for sale and an increase in the number of buyers.
Guy Gittins, Managing Director of Chestertons Agents, said: “London saw a substantial increase in buyer demand in February. Buyer inquiries increased by 36% in 2021, while the number of properties for sale decreased by 11%.
“If 2021 has been defined by a race for space and moves to the suburbs, 2022 has seen an absolute boomerang effect with house hunters rushing into the capital; a shift in buyer behavior accelerated by the return of office workers and international travellers.
Marc von Grundherr, director of London agents Benham and Reeves, said: “As the London market continues to follow the price of property in terms of annual appreciation rates, the explosive monthly increase in February provides the first signs of how quickly the tide is starting to turn. .
“We have seen a sharp uptick in market activity on the ground over the past few months, driven by the return of domestic professionals and overseas buyers, and this is now beginning to translate into positive market momentum.
“While the wider UK market may be sensitive to higher mortgage rates and the rising cost of living, this is less likely to confuse buyers in the capital. We therefore expect to see a complete turnaround in property value performance as the year progresses. »
Lawrence Bowles, research director at Savills, said shoppers were returning to their pre-pandemic priorities with proximity to a metro or other amenities moving up the wish list.
He said: “While access to more space remains important, more and more buyers are telling us that living near a metro station or close to shops and other amenities is a priority. higher. In our February survey, 40% of our buyers in London said that living close to a train or tube station was their first or second priority when looking for their next home; while 26% said they favored living close to local amenities.
“While London looks ripe for another recovery, we expect overall price growth to slow in the coming months as affordability tightens. The Bank of England has already hiked the base rate to three times in the last few months.
“With inflation still strong, mortgage lenders have been pricing in further rate hikes. This limits affordability at the point of purchase, especially for first-time buyers who have less equity to back them up.
How long do house price spikes last?
Other agents agreed that rapidly rising mortgage rates would soon snuff out the mini-boom.
North London agent Jeremy Leaf said: “These figures show that house prices are continuing their seemingly inexorable upward trajectory, but that is not quite what is happening on the ground right now.
“Demand is still well above supply, but concerns about rising costs of living, wage compression and the possibility of further interest rate hikes are reducing price growth and the number of transactions.
“Looking forward, we expect activity to return to more ‘normal’ pre-pandemic conditions as supply picks up as part of the usual spring rebound.”
Andrew Montlake, managing director of mortgage broker Coreco, said: “Has the real estate market ever been so disconnected from economic reality? Another price hike in February should create more unease than celebration.
“Yes, the jobs market is strong, but the latest inflation data coupled with stalled economic growth in February suggests that the bull run will soon be coming to an end. Even then, however, average property values are unlikely to drop much, as mortgage rates are still very competitive and supply levels are ridiculously low.
“As always, the supply and demand imbalance will support average property values going forward, even as we enter a potentially significant economic storm.”