First-time buyers overestimate the cost of London homes

First-time buyers overestimate the cost of London homes

Are first-time buyers overestimating the cost of homes in the capital? Sarah Beeny’s online estate agency, Tepilo, investigates.

A high proportion of first-time buyers are overestimating London house prices, according to new research, carried out by housebuilder Barratt London. Properties in boroughs such as Westminster, Brent, Camden and Hammersmith & Fulham are seen as some of the most expensive to purchase a house in.

With a perception that house prices are higher than they actually are, first-time buyers – an increasingly large, active and important part of the marketplace – could be put off even more than they currently are by high deposits and historically low interest rates (which makes saving for a deposit more problematic).

The report surveyed 2,000 first-time buyers who were seeking to buy in the capital in the next five years, asking them to guess the prices of properties in 12 London boroughs by only having the location and description of the property in front of them.

With regards to the borough of Westminster, some 79% of those surveyed overvalued the price of a first floor, two-bedroom apartment in Marylebone, which was valued at £849,995. Instead, respondents estimated it was worth an average of £955,266, 12% higher than the listed price.

Similarly, 66% misjudged the value of a new build, open-plan apartment with two bedrooms in Stonebridge, Brent, estimating that it would cost an average of £418,496. In reality, the property was listed at £379,950, a miscalculation of 10%.

Meanwhile, 67% of people overestimated the cost of a £750,000 split-level maisonette in Camden, valuing the property at an average of £780,821 – more than £30,000 above its listed asking price. Intriguingly, those who lived in the area predicted it would cost even more, valuing it on average at £814,114. This goes to show that mixed messages about house prices is a problem for inhabitants as well as outsiders, with the perception of house prices often not matching reality even for those with local knowledge.

Elsewhere, a two-bedroom ground floor flat in Hammersmith & Fulham, listed at £799,950, saw its value overestimated by 65% of those surveyed – with respondents valuing it at an average of £825,456, 5% above the actual asking price. Again, those who lived in the area assumed the property’s value would be even higher, valuing it at an average of just over £835,000.

Overestimating the cost of homes was less of a problem in more affordable boroughs, with just over half of those surveyed (52%) overvaluing the price of a £425,000 two-bedroom, Victorian top floor split-level flat in Lewisham, suggesting that the home would cost an average of £433,983 to purchase. The value of the home was also underestimated by locals, with those living in the area speculating that the property would cost £407,861, 4% below the asking price. Lewisham was the only one of the 12 boroughs in the study where locals underestimated the value of local homes.

“We carried out this research to find out how first-time buyers perceive the cost of homes across London,” a Barratt London spokesperson said.

“A huge number of respondents clearly think that house prices in London are higher than they are which comes as no surprise in today’s property climate. The research also revealed that first-time buyers in London are anticipating higher property values overall, location dependent or not.”

This all goes to show how important perception is when it comes to property and house prices. Regular stories in the press and pieces on the news about soaring house prices in London are clearly having an impact on people’s perception of the situation in the capital, even for those who live and work in London boroughs.

While house prices in London are undeniably expensive, the above research shows that they are not - in the majority of cases – quite as expensive as would-be buyers might expect. The number of people overvaluing homes is significant, with perception often not matching reality.

It once again highlights the importance of thorough research when it comes to buying a home. Use the internet, work with your local agent and browse a number of different properties in a given area to give yourself a solid idea of the average prices there. As the research shows, you might just be overvaluing when you don’t need to and could be inadvertently pricing yourself out of a particular borough.

With first-time buyers so important to a well-functioning property market, it’s certainly worrying to see such a high proportion overestimating the prices of new homes. While this is unsurprising and understandable, given the coverage of London house prices in recent years, it could be putting off certain buyers who needn’t be put off. Scepticism, caution and level-headedness are all key attributes when purchasing a home – and these traits should be utilised when it comes to house prices, too.

Your perception may turn out to be spot on, but at the same time it might not. So it’s best to dig deeper and find out for sure rather than writing off certain areas because of how unaffordable you perceive them to be.