London Property Bubble Created By Foreign Buyers

Fox Moving & Storage has found that up to June this year there were 40,000 buy-to-let mortgages agreed, making the buy-to-let market at its most buoyant since the third quarter of 2008.

The average price of a home in the UK now stands at around £232,969, which has risen £500 a month in the past year alone.  The reason behind the property prices rising so rapidly in London is due to wealthy foreign buyers, they make up nearly 60% of prime London real estate properties bought which are worth £5million or more.

Property experts now believe that it is wealthy foreign buyers, and their demand for the multi-million pound homes in the capital, that are fuelling a property bubble here.  London is becoming more and more attractive to foreign investors and it is the high-end properties that they are most interested in.  They view London as a safe haven for their money, especially when many other parts of the world are suffering from economic and political instability.

At the same time there has been a surge in the buy-to-let market with lending to landlords at an all-time high, topping £5billion.  The demand for buy-to-let in the capital has seen property prices get driven up even further.  So much so that one property expert described a house in Battersea being valued at £850,000 but would give a gross rental yield of just 3.6%.

These experts describe London as being in a property bubble, which will no doubt burst.  However at the moment London is very much on the radar of wealthy Brazilians so it will grow more before it eventually pops.

So the buy-to-let sector is at its most buoyant since just before the collapse of the Lehman Brothers investment bank in America in the third quarter of 2008, before the global markets went into free fall around the world.  So even though the £5billion sounds like a lot of lending, it is in fact much lower than the peak of the housing market boom at the summer of 2007 when there was £12.7billion lent in just three months.  It is believed that the recent surge in lending is due to the strong demand from renters combined with low interest rates.  Both of these conditions together equate to more opportunities for landlords to remortgage which helps to fund the mortgage market.

It is feared though that the number of foreign buyers now snapping up prime London real estate means that UK buyers are now being priced out of the market.  One buying agent described the London property market as having “lost touch with reality”.  Kensington and Chelsea has now become the most monied area in London, followed closely by Mayfair, Notting Hill and Belgravia, all prime Central London areas.  Of all of the properties sold in these areas last year valued over £2million, over half were sold to overseas buyers.  However properties valued over £5million in prime Central London bought with foreign money rose to over 60%.  One report states that the London real estate market is more overvalued today than any time since 1995.  One managing director of a Kensington estate agents regarded London as becoming a “land bank” for international buyers.  Chesterton Humberts predict that prime London properties values will still increase by 8% per year between now and 2018.  The sales director there stated that they were busier now than they were before the peak in 2007.

Across the country house prices are still rising, nowhere near the values in the capital, but still rising.  LSL Property Services, an estate agency group, revealed that house prices in England and Wales have reached their highest ever level, higher than the 2007 peak. Halifax also confirms that house prices are increasing at their fastest rate in three years.  The fear is that with a flood of mortgage finance colliding with a chronic shortage of housing, house prices will rise alarmingly once again.

This article was written by www.fox-moving.com


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