House prices in London have risen 18 percent over the last year – practically a fifth of their value – with a rise of 5.3 percent in the last few months alone, fuelling concerns over a housing bubble in the capital.
The rise is such that the gap between the London housing market and the rest of the UK now stands at its widest ever, in terms of cash and percentage.
So why are prices rising so drastically, and what effect is that having on the overall housing market? Well, we as an estate agents in SE1 are about to tell you…
Demand Outstripping Supply
Part of the reason for the rapidly rising prices in the capital is due to the number of houses coming onto the market. In April 2014, the number of houses being placed on the market fell for the fourth consecutive month.
This has led to a frenzied demand for properties in London, with huge numbers of buyers turning out to view houses. This has two main consequences. Firstly, estate agents have been unable to keep up with individual viewings, and have turned to American-style viewings, where potential buyers queue outside a property before having a mere 15-minute slot in which to view the house and make a decision. Second viewings are often not allowed.
The other consequence is that this demand had naturally driven prices up, with buyers forced to raise their offer if they want to get on the housing chain.
Fewer Homes on the Market
One of the possible reasons being mooted for the lack of homes being placed on the market is that some homeowners may be biding their time. Older homeowners who are thinking of downsizing or moving to the country will be watching the London price rises with interest and waiting until the optimum time to advertise their home.
There is also a continued lack of new homes being built, with completions of housing projects still well below their pre-crisis levels.
Financial issues also play a large part in the increased demand for housing in London. Low interest rates, put in place to encourage the growth of the housing market, along with an improved availability of credit and better employment figures are all contributing to a rise in consumer confidence, and an increased demand for housing.
The government’s Help to Buy loan scheme, which offers buyers an interest-free loan of up to 20 percent of the property’s value for all newbuilds up to £600,000 is also a contributing factor.
Former Chancellors, including Lord Lawson, have called for a decrease in the threshold of these properties to £300,000 in an attempt to slow the demand for housing in London.
Unlike previous London housing bubbles, the rises in house prices aren’t confined to areas considered prime property areas – it’s spreading out around the capital as a whole. With a fall in homes becoming available to buy and a frenzied demand for properties, coupled with low interest rates and improved availability of credit, house prices in the capital look set to rise for some time yet. So if you’re on the lookout for a new home, be prepared to queue.
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