Could London really be in a property bubble?
Is London in a bulging property bubble that is about to burst or are these fears overblown? If any part of the UK is indeed in a property bubble then London has to be where all eyes are looking. Itís a fact that house prices in London have been rising and in 2013 some of the cityís most fashionable areas achieved a growth of 12.5%. Itís also common place to see properties appearing on the market with what some critics would call ludicrous price tags, but sellers are still getting close offers, which are duly accepted.
What denotes a bubble in the market?
Letís start by looking at exactly what a housing Ďbubbleí actually is. Itís a term bandied about in property circles and by estate agents, but many people may not know the actual definition. A property bubble is when prices rise in a certain area or city due to a shortage in demand. This prompts speculators to seize an opportunity in the market by attempting to make a quick profit with interim buying and selling; something that further increases demand. There comes a point however when demand stagnates and the availability of houses increases. A sudden drop in prices occurs and the housing bubble bursts.
So renting is the answer?
The answer to that question depends entirely on personal circumstances but the following example may raise some eyebrows. Some properties in the capital with a value of around £500,000 can command upwards of £2,000 per month in rent. 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. The reality though is that not many people have access to a £100,000 deposit or the subsequent means to support a mortgage of that size. Therefore, renting looks like the only option available to many people but it is an option that is made vastly more accessible by specialist letting firms like Rentify for example.
What does the future hold?
For the time being at least, we can expect property prices in our nationís capital to keep on rising. The lack of available housing, stronger economy and queue of foreign buyers means that demand is going to continue to outweigh supply going forward.
What lies ahead for the property market?
Mortgage approvals rose significantly in the last few months of 2013 according to Nationwide, the UKís largest building society. November saw them rise above the 70,000 mark for the first time in five years. Trends such as these are due to a number of factors including labour market improvements, improved buyer confidence and Government-backed schemes like Help to Buy. The problem however is that housing availability is still too low and homes cannot be built fast enough to keep up with demand - Nationwide cited that 45% less homes were built in November 2013 than pre-crisis levels. Until the demand for houses can be satisfied by more new build homes, the growing risk of a London property bubble will remain apparent.