London Residential Market Report

Published by: Right Now Residential

We have no doubt all read reports of people relocating to more spacious properties with green space to survive the lockdown experience. Is this really happening, and if so how does the future look for our capital’s property market? Read our in-depth analysis and report, ahead of tomorrow's budget.

We have looked at the data to establish whether this anecdotal evidence is supported and if so, what are the effects on actual supply and demand and crucially property prices which are of course the barometer for our economic health.

The Headlines

  • Residential Sales in Inner London have a Demand to Supply ratio of 57% compared with 104% nationally
    • This suggests Inner London lacks demand, albeit this is not out of kilter with prior years
    • Asking prices fallen 7% in the last year

  • Residential Lettings in Inner London have a Demand to Supply ratio of 47% compared with 65% nationally
    • This again suggests Inner London lacks demand, albeit again this is not out of kilter with prior years
    • Asking prices fallen 19% in the last year
    • But it will re-awake!

The title is a little dramatic, but there are, at present, some serious differences between London (specifically Inner London) and the rest of the UK. We felt that these needed bringing to your attention. But first, we need to run through a few definitions.


Our definition of Inner London is broad and covers most of what people would think of London. It is basically anything that has a postcode beginning with the following characters E, EC, N, NW, SE, SW, W, WC. If you are used to using public transport in London, we are talking (roughly) about zones 1, 2 and 3.

For the avoidance of doubt, we have also added a map below…

To define Outer London, we have taken the government UK Region definition of London and subtracted what we have defined as Inner London.

We will continue to define supply by looking at the volume of New Instructions – property coming to the market where the owner of a property has instructed an Estate Agent to advertise their property for sale.

As we will also talk about rental property in this client briefing, supply will also be measured by looking at the volume of New Instructions in the rental market – in this case where a landlord has instructed an Estate Agent to advertise their property for rent.

In terms of defining demand, we will be using the volume of Sales Agreed on properties for the sale market and Lets Agreed on properties for the rental market. These are both exceptional indicators of immediate demand.

Residential Sales

We looked at the latest 3-month period (November 2020 to January 2021) to perform this analysis, and for recency, the situation in February 2021 is also consistent. The following table shows all UK Regions with a measure of the ratio of Demand to Supply. In other words, if we saw 120 Sales Agreed and 100 New Instructions, this ratio would be 120% as supply is above demand by 20%.

To make the table easier to read, we have highlighted regions that are above average in dark green, below average (but not the worst) in light green and the worst in red.

It makes interesting reading as we have never observed a situation where Inner London was so diametrically opposed to what is happening elsewhere. Clearly, this either points to a massive lack of demand in the capital versus everywhere else or an enormous oversupply of property on the market for sale or a bit of both. Either of the above points to the property market requiring a correction – prices will fall as we have a buyer’s market.

To look deeper, we examined prior years and established that Inner London's situation is NOT anomalous with prior years at all. If we look at the end of 2019 and beginning of 2020, we would see this ratio being 56%. A look two years ago to 2018/19, would see this ratio standing at 53%.

We can conclude from the above that this is how Inner London operates typically in terms of a demand to supply ratio. However, “normal” is not the word of choice to describe the current property market situation. This might be what London has seen in the past, but it is not what the rest of the country is experiencing right now.

If we look at asking prices, we can see that the market has already begun a correction.

  • Average asking prices in January 2021 for Inner London were just over £818,000
  • This is 7% down from January 2020 and
  • 11% down from January 2019
Compared with everything in the UK outside of Inner London, asking prices are up by 3% in 2020 and 5% in 2021.

We all, of course, know the answer as to why? Covid!

A densely populated Capital city is not peoples' first choice to live through a global pandemic. Lockdown 3.0 caused our fantastic bars and restaurants to close again, putting a constraint on London life and removing a key reason for the younger demographic to live in the city.  

It is widely viewed in the property industry that residential lettings will perform better when residential sales perform poorly. To try and flesh this subject out we also looked at Residential Lettings.

Residential Lettings

Again, we looked at the latest 3-month period (November 2020 to January 2021) to perform this analysis. The following table shows all UK Regions with a measure of the ratio of Supply to Demand. In other words, if we saw 120 Lets Agreed and 100 New Instructions, this ratio would be 120% as supply is above demand by 20%.

Within this time frame of the last three complete months, it is most certainly not true that residential sales and lettings performance are diametrically opposed. In fact, outside of London the evidence shows the opposite as the numbers above are quite strongly correlated to residential sales (correlation coefficient of 0.66), where residential sales are performing well, the lettings market is also buoyant. In London, however, we see a poor performance of sales and lettings market at the same time, clearly pointing to a structural shift in the market.

In a similar way to sales, if we look at the history, 47% ratio of Lets Agreed to Instructions is not bad, considering the prior year was 42% and the year before this 38%.

However, if we look at prices, the average asking prices in Inner London were £2,094 pcm in January 2021. This figure has fallen by a massive 19% in the last year and even more dramatically by 33% in the last two years.  

There are simply not as many people in Inner London to fill the voids left at the start of Covid, and the flood of short let properties, that converted to long let when travel ceased.

In summary, London is not out of kilter with itself, but it is out of kilter with the rest of the UK.

When will London Bounce Back?

A key questions here is, does it need to? Perhaps Inner London is more in tune with the fundamental economics of a Covid induced slow down, and the rest of the country needs the property market to cool down a little?

Volumes of residential sales falling in London (as a UK Region) is not a new thing – they have been falling consistently since 2014/2015 and in 2020, they were about 60% of the level of 2015. This coincides with sustained levels of higher property prices. In 2014, the average transaction price was £387k, but from 2016 onwards, average prices have been consistently in excess of £450k, until very recently that is. So perhaps falling house prices are evidence of a slight but necessary correction.  

With respect to lettings, it is understandable that with rapidly falling prices and ever-increasing legislative burdens, some landlords will look to divest from London property into other areas of the country or other investment opportunities.

On the positive side, London is a truly great city where many people work and play. It is our nation’s capital and the economic powerhouse of England. The vaccination programme is well underway, with one-third of the population already vaccinated with a single dose. The Victorian phrase “as safe as houses” was purported to mean as investments when compared to railways. In other words, if you invest in property, over time, it will not let you down.

The appeal and desire for “London life” has not gone away, its merely sleeping right now as is the capital’s property market. So “sleep to gather strength for the morning, for the morning will come”. (Winston Churchill, 1940). And our bet is that it will be relatively soon (with recovery starting prior to the end of this year).

Despite the events of the past year, many people are still choosing to make central London their home. Things have been quieter, but have certainly not stopped. London will bounce back as soon as we are back to normal.

Until the “morning” we will of course keep an eye on London for you.

Contact our experts today to discuss anything we have mentioned in this report. We provide sales, lettings and management services for residential property across London, including New Homes and Build to Rent.