Rightmove reports that price growth in London increased 2.8% for the month ending in September and 3.8% over the year and some experts are calling the pace unsustainable. Others say there is precedent for the amount of growth being seen, particularly considering the time of year, but the difference is that upward pressure stemming from increased international demand and lower availability make the situation unique. Experts say there needs to be more property on the market, but even when new units become available in London they remain unaffordable for many would-be buyers. For more on this continue reading the following article from Property Wire.
Asking prices in England and Wales have increased almost 3% in the last month and in London in particular they are rising unsustainably, it is claimed.
The latest data from Rightmove shows that in October asking prices are 2.8% higher than they were in September and are 3.8% higher than a year ago.
It means that nationally average prices have increased by £6,923 to an average of £252,418 but the biggest growth has been in London where there was a 10.2% or £50,484 jump in new seller’s average asking prices this month.
This comes after a summer slowdown with two consecutive monthly falls in the price of property coming to market and this was most pronounced in the capital which saw falls of 2.8% and 1.5% in August and September respectively.
But October sees a return to a growth trend which started in January this year. Rightmove points out that such a significant monthly increase in the capital at this time of year is not without precedent. In October 2009, average asking prices in London rose by 6.5% following a similarly low level of activity from sellers over the summer months creating some volatility.
This month’s strong recovery means prices are now 5.6% or £28,852 up on July’s all time high of £515,379, pushing the year on year increase in London to 13.8% or £66,161.
According to Miles Shipside, Rightmove director and housing market analyst, fewer sellers were coming to market in London during the traditional summer recess resulting in total price falls of 4.3% over August and September.
‘However, this month’s rebound in the number of sellers brings the quarterly growth figure back into line with the recent trend at around 2% a month. Although not sustainable in the longer term, some agents currently report there is a buying frenzy in parts of prime inner London, with available stock so low that their shelves are now bare,’ he explained.
Shipside believes that to satisfy at least some of the demand, London needs an increase in supply from a combination of more new build properties and more existing owners coming to market.
For example, the data shows that the number of sellers in London this month is up 15% compared to last, though given that September was 12% down on August, the recovery is modest and from a low base. The situation is exacerbated by overseas investor demand swallowing up much of the new build supply, adding to shortages and creating upwards price pressure.
‘London is a world city where overseas investors see real estate as a safe asset, at a time when safe assets are increasingly scarce, and developers are building and marketing a lot of one and two bedroom flats to meet that demand. While they can achieve volume sales at premium prices, this eats up a much needed source of fresh supply and drags up existing property prices at an even faster rate,’ said Shipside.
He also pointed out that there is a long standing imbalance between supply and demand in London, and as a result both the average price and the entry price are high. He also said that phase two of the government’s Help to Buy scheme is likely to bypass many buyers in the capital and mainly benefit those in other regions.
The data shows that average asking prices in even the more affordable outer London boroughs at £461,937 are more than twice the average in the rest of England and Wales which excluding London at £226,861. Average prices in the prime inner London property have reached stratospheric levels at £937,110, yet the average London wage is only 60% higher than in the rest of the country.
Due to the mismatch between average wage levels and the high price of property in the capital, Rightmove research indicates that 80% of those who intend to buy in the next 12 months will put down a deposit of 10% or more. While this widens their target range of property, it means that the current range of 5% deposit Help to Buy products is of no benefit to many Londoners for whom the income to service a mortgage is a greater challenge than the deposit required.
But outside of London a price bubble seems a long way off in the majority of regions, with the West Midlands and Wales recording monthly falls, the North, North West, Walk, the West Midlands and the South West are still negative year on year and seven in 10 regions recording annual price increases which lag behind inflation.
The South East is the natural recipient of increased demand given the extreme supply shortages in London, as well as having its own needs to satisfy, says Rightmove. Property is coming to market at 2.3% more than last month’s asking prices, though it remains 2.1% behind the peak of £330,612 achieved in July this year.
‘With the London market failing to provide the range of affordable properties its growing population needs, the South East is experiencing upwards price pressure as demand spills over. With an average price of just over £300,000, a commuter belt property is in the cross hairs of Help to Buy assisted purchasers unable to afford the London market,’ explained Shipside.
‘Help to Buy will give some people a leg up onto the South East’s property ladder, but it also needs to spur more first time movers to trade up to increase property supply and temper future price rises,’ he added.
This article was republished with permission from Property Wire.