London will resist price crash, says report
London property will be insulated against a house price crash, says a report from Hometrack.
The housing market research group has said London will be cushioned from a crash thanks to the high levels of capital needed to buy property in the UK’s largest city, and by the difficulty of mortgage financing for all but the wealthiest buyers.
Hometrack found the average loan-to-value ratio (LTV) in the highest 10% of properties was 23%. In mid priced zones, it was 40%. The UK average is 53%. Not only does this ratio show the large proportion of cash buyers in expensive central London, the lower LTRs suggest the impact of a price fall would be softened.
Hometrack research director Richard Donnell said affordability testing and a maximum income multiple make it almost impossible for anyone without a high income to borrow at a LTV.
Growth has slowed, however. In London, house prices grew by 7.3% in the year to January, compared to 6.2% for the wider UK. In January, the average house price in London was £491,000, while in the wider UK it was £218,000.
But now the Bank of England has set a limit of 15% by value of a lender’s mortgage book the number of new loans it will issue at more than 4.5 the average borrower’s salary, the opportunity for big LTV mortgages in London has dropped.
“There is a concern that there is a bubble in the London housing market, but I don’t think that’s going to happen,” Mr Donnell says.
The research also examined the change in value across 10 price categories over eight years. Since 2009, all markets had similar levels of capital growth - but the timing of rises differed. The top 30% of the market saw fast growth up until 2012, as cash-rich overseas and local buyers pushed the prices of central London homes skywards.
However, in 2013 growth in outer suburbs ramped up, as the economy picked up and mortgage rates dropped.
Between 2009 and 2012, prices in the top 10% of the market rose by 52%, compared to 8% in the bottom 10%.
And between 2013 and 2016, mid-market property prices grew by just 22%, compared to 64% in the cheapest 10%. This mid-market slowdown most likely took place in the pricey inner London markets, while price and transaction levels remained steady in outer London suburbs.
Some markets have risen sharply as they find their new price point, thanks to improved infrastructure that allows commuters easy access to the city centre.
Transaction levels in London fell by 35% in the year ending November 2016, compared to a drop of 21% in England.
Largemortgageloans.com says the top slice of the market had “paused” since the Brexit vote, but claims a recovery is likely, thanks to the perennial London problem of undersupply.