Affordability shapes London performance

The Land Registry report that London house price growth slowed to 3.2% y/y in January and more timely data based on mortgage approvals show a 2.2% y/y fall in prices in Q1. The detail suggests that affordability is becoming the primary driver of pricing. Based on current asking prices and mortgage rates, a household made up of two employees on median pay would have to spend a third more on mortgage payments to buy the average London house than has been typical historically. Early price falls in the more expensive boroughs reinforce the view that buyers are shifting their search to cheaper areas. Flats may come back into favour too, for the same reason.