LONDON – IS THE BUBBLE BURSTING?
Bell & Company have previously written posts on the potential property bubble developing in London and the South East of England. In the last week there have been murmurs in the financial press that the bubble could indeed be bursting. London, once deemed one of the most secure property investments, is now looking shaky.
A combination of ultra-low interest rates, investors taking advantage of tax breaks to purchase Buy to Lets and foreign investors encouraged by the stable political environment saw prices reach dizzying heights in the Capital.
Just this week however Halifax revealed prices in London fell by 0.8% which is incredibly unusual, nonetheless this fall links with the additional tax on second homes adding 3% on the purchase price.
Nonetheless other signs (across the entire UK) show signs the market has peaked and may decline. Notable sellers are accepting offers on properties 10% below the asking price with the average UK discount in April being c£25,000 up from £21,560 in January this year.
Henry Pryor, a leading housing analyst, has worked through three property recessions and sights that the current market conditions has a frighteningly familiar feel to it. Mr Pryror adds the following:
- Fewer transactions at the top end of the market with fewer foreign buyers
- 15% off asking prices in London at high end of market.
- Lenders are turning to riskier financial products to push sales through. For example, the 100% mortgage from Barclays. Pryror describes this product as “crackers” and a “financial grenade”.
With some indicators sighting a fall could occur see the potential example below.
- A decent, nothing fancy, 2 bedroom apartment in Streatham costs £500,000
- The number of second home buyers has fallen given the government increase on tax and estate agents are citing a lack of foreign buyers currently. This leaves young professionals.
- At £500,000 a 10% deposit of £50,000 is required. This would take some time to save.
- A £450,000 mortgage is then required to complete the purchase. Most lenders lend 4 and a half times your income. Accordingly, you require a salary of £100,000 which places you in the top 10% of earners.
- Guaranteed yields are being offered.
As mentioned above house prices in London and the South East have been continually rising due to constant demand in the area. With this demand starting to wane we could being to see property prices fall and the start of prevalent negative equity for the younger generation of homeowners.
Should you or anyone you know be effected by Negative Equity please contact Bell & Company today on 02895 217373 to arrange your free initial consultation. Our team achieve regular settlements with a variety of lenders and understand how your lender operates. We look forward to meeting you.