– London house prices falling at fastest pace since 2009

– Values fell by 2.6% in year through January

– London house prices likely to be weakest in UK over next five years 

– Inflated prices make London property more exposed to economic and political shocks

– Worries over house prices are having a knock-on effect in wider economy

– Physical gold to act as much needed hedge against falling property prices

A new study by Acadata as covered by Bloomberg has found house prices in London are falling at their fastest pace since 2009. In the year through to January, London house prices have fallen by 2.6%. In the Greater London area they are down 0.8% in the last month alone.

Excluding London and the South West, annual house prices for the UK grew 2.5%. For estate agents this is a sign that the market is moving to meet the demands of buyers. For outsiders it may well look like the calm before the storm.

London feeling the pinch

Source: ONS

London is the capital of the UK and has experienced significantly higher inflation than other areas when it comes to property prices. This means it is bound to be more vulnerable to both political and economic factors. But, these same factors will still apply to areas outside of London, the ripples just haven’t spread that far.

Demand in London has been dampened initially thanks to increased stamp duty, a tax change for landlords and loan limits in Singapore. But it is increased interest rates and the Brexit-effect that are having the greatest impact and will continue to do so over the long-run. This is particularly the case for Brexit, for as long as the outcome remains uncertain.

The UK’s obsession with house prices puts home owners in jeopardy when it comes to changes in both monetary and political. They are extremely exposed to the housing market which was worth a record £6.8trillion (3.7 times more than the country’s GDP) at the start of 2017. In 2001, the housing stock was worth just 1.6 times more than GDP.

Whilst the house price crunch is reportedly only happening in London and the outskirts, in the UK the repercussions are being felt everywhere. A report by Visa has found that last month consumer spending, fell for the ninth month in the last 10. This suggests that Brits are worried about a collapse in house prices.

We’re very proud of our house values here in the UK. There comes a huge ‘wealth effect’ from owning property; as property values rise so does spending and ultimately GDP. The impact of a declining wealth effect could be disastrous for the economy.

This seems strange given an increase in house prices is really quite meaningless when one thinks about it. You might be overjoyed that your family house has gone up 300% but what can you do about it? Increase the mortgage? Ok, so now you’re in more debt. Sell the house? Ok, but where will you live that hasn’t experienced a similar climb?

This is the myth that so many Brits fall for. The London data and spending figures suggests that soon many will be waking up to the scam they’ve all fallen for, realising the ‘wealth effect’ means very little when a major economic downturn is on its way.

The house price myth

Britons have been sold a big bottle of snake oil when it comes to property markets. Unlike our European contemporaries we are brought up from a very early age that owning our own home is a badge of honour, the seal of adulthood if you will.

This hasn’t always been the case. At the turn of the 20th Century just 23% of Brits owned their own home, fast forward over one hundred years and only 35% of us rent. This is in significant contrast to the li