Predictions of a London property price bubble ready to burst were raised last week in research paper by the investment bank UBS, but others disagree.
The Swiss based bank placed London at the top of a risk ranking of international cities in its so called 2015 “real estate bubble index”, putting London ahead of Hong Kong and Sydney.
The UBS report said:
“London is by far the most overvalued market in Europe, at risk of a bubble as a result of explosive price behaviour since 2013.”
Lancaster University academics’ research added to worries about irrational exuberance in the London property market arguing that London is “on track to be in a house price bubble by 2017”.
Property asset values around the world in countries such as the US, Canada, Australia and New Zealand, Plus Hong Kong and Shanghai, have all seen property asset prices rising exceptionally over recent years.
But London based agents say the risks of a house price bubble in London will not be allowed to get out of control, and the recent measures such as mortgage restrictions and a new tax regime on buy-to-let mortgage interest relief will see to that. Other factors holding back the capital’s property market include stamp duty rises and the prospect of future interest rate rises.
Britain’s property market isn’t yet in a bubble, Lancaster University’s UK Housing Market Observatory claim, but London is “on the cusp of one” and it could all blow up in 2017.
With real London house prices growing at 2.75 per cent per quarter, if this were to continue for another two years, the academics think the city would enter a “bubble phase” which could ripple out to the rest of the country.
In its 5th of November quarterly inflation report the Bank of England provided evidence that residential property demand is outstripping supply and causing many home-owners to delay selling whilst there is a shortage of homes to buy.
Tom Bill, head of London residential research at Knight Frank, told the Financial Times (FT):
“The bubble analogy suggests a rapid implosion, which is not the way we see it. The air has been slowly coming out of the [prime London] market for more than a year. Since the end of last summer as the election moved on to the radar we started to see annual growth decline and that was accentuated after the reforms to stamp duty.”
Whilst Knight Frank has pruned its 2016 price growth forecast for prime central London from 4.5 per cent to 2 per cent, Savills is forecasting a 15.3 per cent rise in London prices over the next five years, lower than the 17 per cent rise it is predicting for the UK as a whole.
Lucian Cook, head of residential research at Savills, told the FT:
“Affordability in the mainstream London market had been constrained by the tighter lending rules introduced last year under the mortgage market review and other regulation dictating how much banks could lend borrowers as a proportion of their income.
“You’ve still got some capacity for price growth in London over five years because you’re going to have an incredibly affluent buyer profile and people will shift in terms of where they look. But you will find affordability eroded and, as a result, pressure on transaction levels and continued growth of private renting as people struggle to access home ownership.”
London Property Price Bubble Risks are Overblown – https://t.co/uVQOZIID8w
— LandlordZONE (@LandlordZONE) November 18, 2015