What’s happening in the London Property Market?
Over the past year, London’s house prices have soared by 26%, which is the biggest annual jump since 1987. To drive this point home, every borough in the capital has seen an increase in price per square metre over the past five years. This means that for first-time buyers who want to get on the property ladder, the cost of a home is now up to nine-times their salary – making the prospect of owning a house almost impossible, unless it’s done through the means of teaming up with friends or siblings, where a married or long-term partner doesn’t exist, as seen in current trends.
The current house prices in London are at the highest salary-to-value ratio for first-time buyers. This is a direct result of London property prices bursting through the affordability ceiling into the unaffordable category for many of the country’s young professionals.
An additional consideration is that foreign money is pouring into the London property market, which is seen as an attractive investment by everyone, from Russian business magnates to US technology titans. This naturally prompts a scramble amongst want-to-be local property owners to purchase property that only digs them deeper into crippling debt.
In the second quarter of the year, the house prices in London were 25.8% higher than a year earlier. Such a jump has not been seen since 1987, a year riddled with financial crisis due to the Black Monday stock market crash. This rise has meant that the average house price for a first-time buyer in London has risen by 26.2pc to £351,783 in the past year, which is more than double the growth rate seen across the rest of the country.
“Levels of recent price growth in London means that prospective home buyers have had to take on increased debt relative to their income to get on or move up the housing ladder,” said Lucian Cook, head of residential research for Savills property group. “For many this [property price hike] has made the aspiration of home ownership much more difficult to realise [as] buyers have had to cast their net much wider geographically across the capital, bringing demand and price growth to some of the less expensive markets.”
Figures across the nation have confirmed the Bank of England’s Mark Carney’s worst fears that runaway house prices in London could end up needing to be reined in so as to avoid them from posing the “biggest threat” to the recovery of the UK economy. Just last week the Bank of England’s former Financial Policy Committee voted to limit the proportion of lending, while introducing stress tests to ensure borrowers can afford a 3% increase in rates. Such policies are designed to impact borrowers based in London, rather than stifle the recovery in the rest of the country.
Despite the grim forecast for first-time home owners in London, a housing survey conducted last month by the Royal Institute of Chartered Surveyors has offered some comfort by highlighting how demand is cooling down in central London, which is a result of buyers beginning to walk away from inflated prices, even in the more affluent areas of Kensington and Mayfair.