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Is London heading for a property bubble?


01-27-2014

By Contributor

IS LONDON HEADING FOR A PROPERTY BUBBLE?

Is London in a swelling property bubble that is about to erupt or are these concerns exaggerated? If any part of the UK is suspect to a property bubble then London has to be the number one focus. House prices in London have been rising rapidly with some of the cityís most desirable areas achieving a growth of 12.5% last year. It has also become familiar to see Ďoverpricedí properties appearing on the market, but sellers still achieve close offers, which are still accepted.

What exactly is a property bubble?

A property bubble is a term used in property circles to describe a price rise in a certain area due to a shortage in demand. This then in turn prompts investors to take advantage of an opening in the market by attempting to make a quick profit with temporary buying and selling; a tactic that increases demand even more. However, demand eventually declines, increasing the availability of properties on the market.  A rapid drop in prices occurs and then the bubble bursts.

Whatís the answer?

Some say the answer lies with tightening tax rules. The government recently considered the possibility of tightening the rules concerning foreign ownership. The London market has been fueled by foreign investors wanting refuge for their money, and this is frequently mentioned as the initial cause for the housing bubble. However, some say foreign buyers are an easy target for blame and wonít solve the problem.

Demand is also an important factor to consider. With an already uncertain economy, the city has received additional pressure from those seeking brighter prospects from all over the world. This reinstates the fact that London has become more and more desirable from both home and abroad; however it also burdens the already bustling city in regards to rent and property prices. Couple this with Londonís existing reputation for housing some of the worlds wealthiest and you already have a major issue on hand.

Others say renting is the answer. With properties in the city valuing up to £500,000 and commanding £2,000 PRM, if a potential buyer with a 100k deposit took out a two year fixed term £400,000 mortgage at approximately 2.39%, they would pay less than £1,800 monthly. Realistically, not many people have access to such a generous budget, reinstating why renting seems to be smartest choice and one that specialist letting firm Rentify make much more straightforward.

Whatís next for Londonís property bubble?

Property prices in the city are expected to continue to climb. The shortage of accessible housing, stronger economy and increasing amounts of foreign investors means that demand is still going to continue to outweigh supply advancing.

Whatís the future for the property market?

Mortgage approvals rose considerably last November with a rise of over 70,000. Increases like this tend to occur because of labour market improvements, and improved buyer confidence. However, low housing ability is still a major problem and properties cannot be built fast enough to keep up with demand so until this requirement can be fulfilled by more new build homes, the mounting threat of  Londonís property bubble will continue.

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