Pandemic trends intact as outlook darkens

London house prices and transactions have proven resilient to the headwinds of the cost-of-living crisis and rising mortgage rates so far. House price growth in London rose to 7.2% y/y in Q2, the highest since 2016. But that was still below the national average of 10.6% y/y and with office attendance significantly below pre-COVID-19 levels, central London boroughs continued perform particularly poorly. (See Chart 1.) Moreover, the recent pick up in price growth will be temporary. Very high prices relative to local incomes mean that the impact of rising mortgage rates on affordability will be more severe in London than anywhere else. We expect a 12% drop in prices in London over the next two years compared to a 7% fall nationwide.