London house prices are still at risk of a bubble, according to this wealth manager
London's property market is still firmly in "bubble-risk" territory, one of the UK's largest wealth managers has warned, as it ranked the capital's housing market as one of the most vulnerable in Europe.
Investors should take caution in the capital's housing market, UBS Wealth Management said, as it published its Global Real Estate Bubble Index today.
While Toronto came top of the ranking, with a score of 2.12, London came sixth, with a score of 1.77. At the bottom of the ranking was Chicago, with a score of -0.66, meaning it is undervalued.
Prices in the capital are being pushed up by mortgage rates at "all-time lows", while the help to buy scheme has kept demand high. However, the luxury end of the market faces oversupply, the research warned.
Still - it's not as bad as other European cities: Stockholm and Munich were both seen as more "bubbly" than London, with scores of 2.01 and 1.92 respectively. Amsterdam was lower, though also in bubble territory with a score of 1.59, while Paris, Frankfurt and Geneva were seen as overvalued, and Milan was fair-valued.
London's house price slide
The research suggested when adjusted for inflation, the capital's house prices are almost 45 per cent higher than they were five years ago, and 15 per cent higher than before the financial crisis. Meanwhile, real incomes are 10 per cent below their levels in 2007.
But although various indices have pointed to a slide in London house prices - with one forecaster suggesting prices in the capital are unlikely to rise until after Brexit - the ranking suggested bubble conditions are facing the top end of the market.
"[Sterling] depreciation can make for an attractive market entry point for foreign investors, whose impact, however, should not be overstated," it said.
"We think London house prices may stabilise in the coming quarters. Low affordability, the economic slowdown and uncertainty about the UK’s relationship to the EU are keeping demand in check. On the other hand, we expect supply to slow further this year, considering the decline in housing starts in [the first quarter of this year].
"We continue to advise caution given high market valuations and enormous political uncertainty."