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Is the London house price bubble bursting?

Written by Martin Upton

Friday 6th October 2017

The latest data show house prices falling in London for the first time since 2009 when the country was in the immediate aftermath of the global banking crisis. Nationwide Building Society’s September survey found average London prices were 0.6% lower than a year ago. 
 
Elsewhere, house price inflation is moderating although prices are still higher than a year ago. The national average rate of house price inflation is now 2% - although some regions are experiencing inflation rates that are quite marked. Average house prices in the East Midlands, for example, are 5.1% higher than in September 2016.
 
So what is going on in London? Are we seeing the first signs of a severe house price adjustment in the capital?
 
A number of factors appear to be influencing London house prices...
 
The simple issue of affordability is driving many buyers to seek properties outside the London area - one reason, perhaps, for the continued rise in prices in areas around London. The cost and burden of a commute into London may, for many, be a price worth paying for finding an affordable property in the regions around the capital.
 
But additionally, I believe that there is a Brexit factor afoot - although I accept that the evidence to date is patchy and anecdotal. 
 
Despite the fall in the value of the pound since the June 2016 referendum I suspect that investment in the London market from overseas may be stalling as we all await the consequences for the economy of the reality of Brexit in the coming years. 
 
Additionally one of the drivers of the London market has always been the City and, specifically, the banking sector. The prospect that many banking jobs will be relocated to EU countries after Brexit is likely to be having an impact on the demand for London property from that affluent sector of the economy. 
 
If banking jobs move to the continent so too will jobs in the associated sectors like insurance, accounting and legal services.
 
Brexit will, in all likelihood, erode the City’s footprint in the global financial markets and in international business. A retracement of the enormous rises in London property prices seen in recent years seems likely to be one consequence of this.
 
*Martin Upton is director of True Potential PUFin
 
              

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