Another new analysis of the UK property market has concluded that London prices are entering a bubble and could be set for a crash.
According to Lancaster University’s UK Housing Market Observatory report, Londonprices are ‘very close to entering an exuberant phase’ – in other words, a bubble.
According to the report, the average London home now costs £443,400 – up 83% on the first quarter of 2009 and 11% more than this time last year. Some of the biggest growth was in suburban areas where price rises have in the last tended to lag behind.
If London prices carry on rising at this sort of rate – 2.75 per cent every three months – the researchers say that a bubble is likely to hit in early 2017.
And, they warn, “Historical evidence suggests that phases of exuberant house prices are often followed by a sudden crash, leaving home buyers with large mortgages and negative equity.”
Things look more stable for the time being in the rest of the country, despite the fact that prices are now higher than in 2007 – the peak before the last house price crash. There’s still no sign of bubble-type behaviour outside the capital, the report’s authors say.
However, this could change, they warn.
“There is evidence that London is leading the UK national housing market – the so-called ripple effect – and there is therefore a risk of bubble-type behaviour spreading to surrounding regions, and from there to the rest of the UK,” they write.
“Such concerns are supported by the indicators of the London outer metropolitan area, which have been increasing over the past year.”
The Housing Market Observatory report is to be published four times a year, and is based on a calculation of real house prices against real personal disposal income.
And this first report echoes the findings of research published by UBS last week, which also cited London’s explosive growth. UBS rates London ‘by far’ the most overvalued market in Europe, and similarly predicts a bubble followed by a crash, some time in the next three years.