It would be reassuring for other areas of the UK to catch up in some way with the good fortunes London has recently enjoyed.
Tony Ward is chief executive of Clayton Euro Risk
Last week, BNP Paribas reported that house prices are expected to rise by more than 20% over the next four years. Growth, its analysts said, will be strongest in the South West at 33% followed by the South East at 27.6% and the West Midlands at 24.4%. The UK’s slowest growth will be in the North of England, where house price are expected to rise by only 8.1%.
To my mind the most interesting aspect of the report is its suggestion that the rapid house price growth experienced in London since 2013 will disappear. BNP Paribas predicts that growth in the capital will slow by more than two-thirds this year, after reaching ‘unsustainable’ levels in 2015. Having risen by 12.3% last year, the report forecasts that house price growth will achieve 3.5%–4% for the next four years.
So what’s behind this turnaround in London’s fortunes? According to BNP Paribas, price growth in some of the city’s most expensive postcodes will slow because of stamp duty increases, ‘ambitious prices’ set by vendors and oversupply of property. Weakening demand from overseas investors, who are suffering from a drop in the value of their currencies and financial volatility on global stock markets, is also a factor. Adrian Owen, head of residential at BNP Paribas Real Estate, said: “We have already seen a dissolution of overseas and investor activity in the capital. With investment capital, particularly from the Far East, less readily available, new home sales will become more challenging.”
So is this the beginning of a seismic change? I’m not so sure. A recent study from Knight Frank showed that high net worth individuals tend to favour London as the city in which to live, work and educate their children. I see this trend set to continue. And with uncertainties over the UK because of the Brexit which are weakening sterling this will to some extent offset other negative factors. However, there will be changes to the London market. The capital has become an isolated island in which ordinary mortals are struggling to live and work and make ends meet.
Savills recently reported that London is the most expensive city in the world to accommodate an employee, based on the cost of renting a home and leasing office space for each worker per year.
Furthermore, the National Housing Federation suggest that Londoners need a 266% pay rise in order to buy a home in the capital. It calculated that at £526,000, the average price of a house in London is 16 times the mean salary of Londoners, at £33,000 per year. More than half of London boroughs require an income of over than £100,000 to buy their average house.
So going back to the suggestions made in the BNP Paribas report, I for one would welcome some adjustment to the market. It would be reassuring for other areas of the UK to catch up in some way with the good fortunes London has recently enjoyed. So, possibly good news for first-time buyers in the capital. BNP Paribas agrees: “This is positive news for first-time buyers in London, who can probably expect a warmer welcome at the sales office of new homes developments over the next few years,” Mr Owen said.
I’ll wait to see it but that’s encouraging to hear.
