London’s strong housing market is plain to see: Land Registry figures show prices are up by 6.3% in the last 12 months and the average price for a property in London is now £385,799. Meanwhile, typical values in every London borough are at least five per cent above their levels before the 2007 downturn according to the Halifax. But we now have to ask: is this going to last, or is it a bubble ready to burst?
Evidence suggests that the market will be strong for some time to come and that the recent gains won’t be lost thanks to improved and more responsible lending. Firstly, demand is rising. “Over the normally-quiet summer period of June, July and August we’ve had a 109% rise in buyers registered with us compared to the same period of 2012” says KFH’s north and central London regional sales director Robert McLaughlin.
Secondly, lending is much greater than in recent times. Figures from the Mortgage Advice Bureau, an industry monitor, demonstrates that over 10,250 different mortgage products are now available to the public - this is up from only 4,000 products exactly four years ago. But although these two factors fuel demand, there are several reasons to believe the capital’s housing market will not become overheated.
Supply is slowly improving too as more new homes are, at last, being built. Figures from London Residential Research, a housing industry consultancy, show that in the 12 Inner London boroughs some 6,584 homes were built in 2010 rising to 7,300 in 2011 and no fewer than 9,690 in 2012. This year’s figures are expected to be higher still. “Additionally, a lot of ‘accidental landlords’ who kept their properties to let out when the sales market was difficult a few years ago, will now sell at last. This will improve supply further” says Lisa Mackenzie, KFH’s regional sales director for south west London.
The increased mortgage availability has been tempered by stricter controls over who can borrow and how much they can secure, with greater scrutiny being placed on applicants in an effort to avoid high risk borrowers. Crucially - and despite the Bank of England suggesting the current record low 0.5% interest rate would continue until 2016 - shrewd buyers are thinking ahead. The Council of Mortgage Lenders says there is now a record take-up of 5 and 10 year fixed-rate mortgages. This shows that people are securing loans fixed at today’s lower rates, to beat possible interest rate increases in the future. There will of course be an ebb and flow in market recovery.
Government initiatives are also helping and the new Help to Buy scheme will sharply boost buyer numbers but this will be balanced by a slowdown in the current level in activity from pent-up buyers who were too worried to move during the downturn. There may also be a traditional lull in buying and selling during the 2015 general election period. The broad picture, therefore, is one of London’s housing market avoiding the pitfalls of an over-heated recovery and becoming stronger in a sustainable and responsible fashion.
And after five years of national economic downturn, that is good news for everyone.
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