London house price boom

03 March 2014

The property market in London has undergone something of a renaissance over the past 2 years. From the depths of winter 2009 where London house prices had fallen by an average of 15% from their Summer 2007 peak, by the beginning of 2013, they had made up all the ground lost.

House prices in London are now approximately 5% -10 % higher than in 2007, in stark contrast to the rest of the UK, where most properties are trading up to 20% off their peak.

So, why such a large gap and such a growing discrepancy?

London has benefited immensely from its perceived status as a politically-stable safe haven. At a time when the Arab world is in uprising and The Eurozone is in economic and political crisis, London is one of the few world cities (along with New York and perhaps Tokyo) where wealthy foreigners can safely invest their money in property, knowing it will both hold its value and provide a safe haven to move to should the need arise. The City’s status as the geographic business center of the world, due to its convenient time-zone and world-beating infrastructure has ensured that even during the worst recession in living memory, demand for London property has stayed firm.

This situation has also been helped greatly by the historically low bank of England base rate of just 0.5%. It should be remembered that as recently as 5 years ago, borrowing rates were at 10 times this level.

However, foreign ownership of UK property has become a far less attractive proposition since the April 2012 budget. The Chancellor of the Exchequer raised Stamp Duty Land Tax to a record 7% on purchases above £2 million and determined that homes bought in a company structure are liable for tax at the rate of 15%. This immediately made London a far less attractive investment for wealthy foreigners who would both be adversely affected by the higher Stamp Duty and the large disincentive to purchase property in an anonymous company as they were used to doing.

Regardless of the rights or wrongs of this move, sales activity in the prime market has without doubt slowed considerably over the past 6 months and this is having a knock-on effect further down the housing ladder.

While lower prices should make it easier for first time buyers to ‘get on the housing ladder’, in reality vendors looking to trade who purchased in the past 6 years may well find themselves back in negative equity and be unable to pay off their mortgage when they sell. Rather than defaulting as they would have done in past downturns, with interest rates so low, many will just choose to stay put and ‘wait it out’ in the belief that the market will once again recover quickly.

Our belief is that the market has peaked and that a lack of foreign demand which has buoyed up the housing market over the past three years will bring the reality of the situation into sharp focus over the next twelve months.

Interest rates have been held at historically low rates for a number of years now but they can only go up. As and when they do, homeowners who have been coasting on low monthly repayments will be in for a huge financial shock and the housing market is likely to become crowded with vendors looking for a quick escape.

If you have been holding back selling your home, now could be the best time to get a decent cash offer. Call SecureASale today on 020 7117 6001 and speak to one of our directors to arrange a free valuation or just discuss your situation. We are London’s largest cash home-buyer and promise to  always give honest advice.

 

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