London house price gap continues to grow: Land Registry

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“The gulf in property prices across the UK grows ever bigger with London house prices hitting a new all-time high in February, up 13.8% in a year. Transaction volumes are rising but are still some way off the peak of the market and the lack of supply is helping fuel soaring house prices in parts of the country. There are growing fears that if we are not in bubble territory yet it won’t be long before we are, with the Bank of England raising the alarm about borrowers over-extending themselves.

“The problem mortgage borrowers have is that they are competing against cash buyers who don’t have the same affordability constraints. Governor Mark Carney has commented that he can’t control house prices because he has no sway over those cash buyers who aren’t affected by interest rate rises. While buyers from overseas are playing a part, it is not just international purchasers who are in the fortunate position of buying for cash: many of my clients who do so are from the UK, and are downsizing from larger homes.

“Lenders are stricter and the bad old days where it was possible to borrow up to seven times income are long gone. However, borrowers still need to do a reality check and consider whether they could afford the mortgage if there was a 1% rise in interest rates – or more. If not, it’s important to be realistic and rein in the borrowing.

“Supply constraints are not going to be resolved anytime soon. The government has made the right noises about building more homes but this takes time. In the meantime, prices are likely to rise higher and we could well find that the illusory bubble becomes a dangerous reality.”

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