IS LONDON NEXT TO GO?

London is an incredibly diverse city and is proving very desirable place for people to purchase property. However, prices continue to soar in the city and suburbs which has lead to Chancellor George Osbourne being put under pressure to present ideas allowing first time buyers and those not on a high end salary to get onto the Property Ladder.

A couple of figures to ponder:

  • 26% of purchasers in London’s wealthiest areas are from Asia
  • In October 2015 the average property price in the City was £598,173
  • The average deposit a Londoner requires to buy a property is now £179,248
  • Outer boroughs and commuter towns are now seeing annual price increases in double digit percentages. Previously unheard of!

Despite the incredible high prices demand for property in the Capital continues to soar and is outstripping supply despite recent Government pledges to build over 400,000 new homes.

One reason first time buyers are able to get on the property ladder is by utilising the Help to Buy scheme and only paying down a 5% deposit. This coupled with cheap mortgages due to historically low interest rates has allowed people with the average salary of £30,000pa to get onto the ladder.

knkl

The chart above reveals that while people are able to buy a house in London, their salaries are not keeping up with prices. So therefore, those still looking to get on the property ladder will increasingly struggle to buy a home. But the gap between earnings and house prices suggest that the London property bubble could burst at any minute, if there are any big shifts in interest rates. If these first time buyers are fuelling the market there is concern once rates do rise then mortgage payments simply become unsustainable.

UBS’ property price index which measures inflation is reportedly flashing red in London and cites that of all the world’s major cities, London is perhaps the most likely to see a bubble burst. UBS cite low interest rates and cheap mortgages as fuelling the boom and that historically when prices increase at this rate there has been a correction.

Leave a Comment