London home prices fell in May at their sharpest annual rate since 2009 as a slowdown that began in the expensive central boroughs took hold around the capital.

Prices in London dropped 4.4 per cent in the year to May, 2019, an acceleration from the fall of 1.7 per cent for the year to April, according to the Office for National Statistics – the largest annual drop in house prices since August, 2009, when they fell 7 per cent.

The decline in London house prices, combined with slower growth in the south and east of England, has cut into rates of UK house price growth over the past three years. In the UK as a whole, house prices increased 1.2 per cent in the year to May, down from 1.5 per cent in April.

Factor

Economists said Brexit was a factor in the slowdown. Howard Archer, chief economic adviser at the EY Item Club, said: “There are signs that housing market activity may have got a little help from the avoidance of a disruptive Brexit at the end of March, but the overall benefit looks to have been limited.”

He added: “We believe with Brexit being delayed until 31st October . . . and the domestic UK political situation unsettled, prolonged uncertainty will weigh down on the economy and hamper the housing market.”

Annual price falls have slowed over the past two months in London’s most expensive central boroughs, such as Kensington and Chelsea, which led the slowdown and where prices have already fallen sharply. But areas further from the centre are now experiencing their own slump: in the borough of Lambeth prices were down 4.5 per cent year on year in May.

Richard Donnell, research and insight director at the property portal Zoopla, said: “We expect the pace of annual price falls in London to moderate over 2019 and in 2020.”

Price growth in Wales and Scotland was stronger than in England. In the year to May, house prices in Wales increased by 3 per cent, down from 5.3 per cent in April, while in Scotland they increased by 2.8 per cent compared with 1.7 per cent in April.

Inflation

In England, house prices increased by 1 per cent compared with 1.3 per cent in the year to April. Growth was strongest in the North West, with increases of 3.4 per cent, and the West Midlands, with increases of 2.7 per cent.

The ONS also said that UK inflation was unchanged in June, again meeting the Bank of England’s target, despite continued wage growth.

Prices were 2 per cent higher than a year earlier, the same as in May, and matching the predictions of economists. The core inflation rate, excluding food, alcohol and energy, increased from 1.7 to 1.8 per cent last month.

The steady rate of inflation would give the bank little reason to consider interest rate cuts, economists said.

“There is little pressure for the MPC to adjust interest rates in either direction with CPI inflation remaining at target in June,” said Andrew Wishart, economist at Capital Economics. – Copyright The Financial Times Limited 2019