LONDON • On the less fashionable fringes of London, home sellers are quickly finding out just what the market can bear.
Buyers fleeing the capital's costly centre turned peripheral boroughs into London's hottest property markets. Now, more sellers in those areas are being forced to cut their prices after values quickly outstripped the spending power of the average buyer.
The number of asking-price reductions is growing at the fastest rate in outer London boroughs such as Newham. Discounts have also increased in areas such as Tower Hamlets in the east.
"Peripheral areas, which buyers turned to when inner London became too expensive, have seen considerable inflation recently and reached a point where affordability is stretched," said Mr Neal Hudson, founder of research firm Residential Analysts. "Before, people got around it with longer-term mortgages, but the limit has been reached."
London home prices surged 82 per cent in the past decade, outpacing wage growth and testing the limits of what buyers can borrow. That led purchasers to seek discounts in the capital's lower-cost outer districts causing values to soar.
"People are struggling with affordability and the problem is especially acute in London," said Mr Ian Sutcliffe, chief executive of homebuilder Countryside Properties. The firm has pushed down the average cost of its new homes by 13 per cent in the first half from a year earlier.
Mr Sutcliffe said the bulk of demand for London homes comes from people who work in the city and can afford to spend between £400,000 (S$710,000) and £600,000. The current average price is £680,607, according to property website Zoopla, while the average Londoner's salary is £34,762.
Mr Lucian Cook, head of residential research for Savills, estimated that prices in the capital will stagnate this year before rising 3 per cent next year. He added: "What we have seen already with discounts in the higher-end market is gradually coming full circle and extending to the more affordable areas."