London has a reputation for being an expensive place to live. The cost of living is quite high, especially compared to other parts of the United Kingdom, which is reflected in London property prices. The average cost of a home in London has risen to £531,212 (as of August 2024), which has been part of a gradual price climb over recent decades.
Even during times of uncertainty and economic downturns, the cost of London properties has remained high. Among the many reasons for this are recent economic shifts (like lower interest rates), while others have contributed to the prices for many years.
Lower Interest Rates
In August 2024, the Bank of England cut interest rates by 0.25 per cent and is scheduled to cut them further in November. These rate changes have impacted the UK, including London’s property prices. Lower interest rates may sound like they would help keep prices to a minimum, but the opposite often is true. Property owners often set higher asking prices when mortgage and interest rates are lower to get the most value for their property investment from buyers.
Lower rates also increase demand for properties (another reason for London’s high property prices we’ll delve into below) because buyers will have an easier time obtaining loans to help them purchase a new property or generally finance a purchase.
It’s not just individuals looking for a home who benefit from these lower rates. Businesses also take advantage of these interest rates to purchase commercial properties. And though many industries, such as commerce, online casinos, and even education, are moving to a remote online working model that requires little physical space, head offices are often still needed for essential operations.
Economic Growth
Although London has been slow to recover from the economic downturn caused by the COVID-19 pandemic, it has started to show a gradual and steady increase that it is projected to continue on. These projections create more confidence in the city’s economy and make people feel more comfortable buying or selling within the market.
Employment Opportunities
London’s unemployment rate post-COVID remains high, but the job market is also struggling with skill shortages, with many businesses reporting a gap in their skill needs. Due to these gaps, companies are willing to compensate impressively when they find the right person, leading to lucrative opportunities in the city. Industries and fields related to technology, finance, and creative work thrive in the city. There are also indications that as the economy continues to grow, this will trickle down into the job market, creating even more opportunities.
These factors shape an appealing job market in the city, adding to the value of properties and the desire to live there.
Transportation
Another factor that can increase the value of properties in any city is the quality of public transportation infrastructure, and London’s is often considered efficient and reliable. The network of subways, buses, and trains at affordable rates and with reliable scheduling keeps property prices in the city rising.
Cultural Hub
The vast array of cultural attractions in London not only makes the city highly appealing to tourists but also makes it appealing to potential residents. Many are intrigued by the museums, galleries, and theatres that the city offers for entertainment, but beyond this, there are many other attractions.
The city is considered a fashion capital and offers shopping opportunities that reflect this. It’s a known foodie hub with diverse influences and flavour experiences that appeal to every palate. It boasts many festivals and events that span a wide range of interests. Then there’s the nightlife, heritage sites, and surprising surplus of green spaces and parks. These all come together to offer an inviting cultural experience, deliver a high quality of life, and contribute to the high cost of living and real estate.
With so many things on offer, many consider the cultural opportunities and quality of life well worth the price tag.
Prestige of London
With London being home to the British royal family and the Houses of Parliament, it has garnered international attention and an air of prestige and wealth that makes it appealing for individuals and businesses looking to settle in a new region or expand their reach to new audiences. These qualities signal economic stability, making property and building a life in the city feel like a sound investment.
Population Growth
Since the early 1990s, London’s population has steadily grown and is projected to reach 9.6 million people by 2035. Even areas surrounding London are seeing similar growth rates, contributing to London and its neighbouring municipalities’ high demand among property buyers. Over 40 per cent of London’s current population comprises migrants from outside the UK, which can be attributed to the many allures of the city like its job prospects, cultural experiences, reputation, and the overall quality of life the city offers.
High Demand for Properties
The above-mentioned factors and a housing shortage have long fuelled a high demand for property in London. More housing development in the city, particularly affordable housing, has been a hot topic for many years. It was a key discussion point in recent elections and has spurred more growth in the number of houses constructed, but even with this, new construction isn’t meeting the demand for the number of homes needed. This creates a highly competitive marketplace that steadily increases the prices of properties in London.
Conclusion
London’s property prices have steadily risen due to factors as diverse as reduced interest rates, a growing population, cultural experiences, and increasing demand for real estate. These factors highlight the city’s massive appeal to both individuals and businesses, making it a highly competitive property market and a sought-after investment opportunity.