Pick up in London demand will be fleeting

Despite the permanent increase in working from home, the end of pandemic restrictions has triggered a resurgence in demand in London’s rental and house purchase markets. Annual inflation in the ONS House Price Index for London has already risen from 3.8% in January to 8.1% in February, and more timely indicators point to a further acceleration in the near term. Moreover, some central boroughs such as Camden and Westminster have reversed previous dips in house prices. However, with mortgage affordability more stretched in the capital than in other regions, we expect rising mortgage rates to cool house price inflation later in the year.